10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                

Commission File No. 000-20354

LIGHTING SCIENCE GROUP CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	23-2596710
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)
1830 Penn Street, Melbourne, FL	32901
(Address of principal executive offices)	(Zip Code)

(321) 779-5520 

(Registrant’s telephone number, including area code)

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒   Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ☒   Yes ☐   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

☐ Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company

 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐  Yes ☒ No

The number of shares outstanding of the registrant’s Common Stock, par value $0.001 per share, as of November 10, 2015, was 211,756,727 shares.

LIGHTING SCIENCE GROUP CORPORATION
AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2015

Table of Contents

		Page
PART I
Item 1.	Financial Statements (Unaudited)	1
Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014		1
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended September 30, 2015 and 2014		2
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Nine Months Ended September 30, 2015 and 2014		3
Condensed Consolidated Statement of Stockholders’ Deficit for the Nine Months Ended September 30, 2015		4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 5		5
Notes to the Condensed Consolidated Financial Statements (Unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	19
Item 4.	Controls and Procedures	29
PART II
Item 1.	Legal Proceedings	30
Item 6.	Exhibits	30
SIGNATURES		31

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30,			December 31,
	2015			2014
Assets
Current assets:
Cash and cash equivalents	$	574,111		$	1,609,297
Restricted cash		3,000,000			3,000,000
Accounts receivable, net		13,131,606			10,417,985
Inventories		27,360,094			22,726,162
Prepaid expenses		955,644			2,936,837
Other current assets		2,345,374			1,610,544
Total current assets		47,366,829			42,300,825
Property and equipment, net (includes accumulated depreciation of $11.7 million and $10.3 million as of September 30, 2015 and December 31, 2014, respectively)		1,257,851			2,650,115
Intangible assets, net		2,805,375			2,572,479
Pegasus Commitment		286,400			720,000
Debt issuance costs, less current portion		2,148,826			3,230,446
Other long-term assets		132,598			118,467
Total assets	$	53,997,879		$	51,592,332
Liabilities and Stockholders’ Deficit
Current liabilities:
Lines of credit	$	6,960,340		$	6,368,793
Current portion of long-term debt		52,755			58,574
Accounts payable		15,340,305			19,364,552
Provision for losses on non-cancelable purchase commitments		31,710			540,227
Accrued expenses		7,993,916			9,924,316
Total current liabilities		30,379,026			36,256,462
Note payable		28,871,320			27,813,061
Long-term debt, less current portion		-			35,272
Liabilities under derivative contracts		6,703,054			5,636,944
Total other liabilities		35,574,374			33,485,277
Total liabilities		65,953,400			69,741,739
Series H Redeemable Convertible Preferred Stock, $.001 par value, authorized 135,000 shares, 113,609 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively		227,220,149			227,220,149
Series I Redeemable Convertible Preferred Stock, $.001 par value, authorized 90,000 shares, 62,365 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively		124,736,627			124,736,627
Series J Redeemable Convertible Preferred Stock, $.001 par value, authorized 85,100 shares, 80,062 shares issued and outstanding as of September 30, 2015 and 58,475 shares issued and outstanding as of December 31, 2014		160,124,000			116,950,000
		512,080,776			468,906,776
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.001 par value, authorized 25,000,000 shares, 113,609 shares of Series H, 62,365 shares of Series I and 80,62 shares of Series J issued and outstanding as of September 30, 2015 and 113,609 shares of Series H, 62,365 shares of Series I and 58,475 shares of Series J issued and outstanding as of December 31, 2014
Common stock, $.001 par value, authorized 975,000,000 shares, 214,326,722 and 212,452,636 shares issued as of September 30, 2015 and December 31, 2014, respectively		214,327			212,453
Additional paid-in capital		298,612,012			320,175,440
Accumulated deficit		(816,104,632	)		(800,328,573	)
Accumulated other comprehensive loss		(3,000,504	)		(3,358,003	)
Treasury stock, 2,505,000 shares as of September 30, 2015 and December 31, 2014 , at cost		(3,757,500	)		(3,757,500	)
Total stockholders’ deficit		(524,036,297	)		(487,056,183	)
Total liabilities and stockholders’ deficit	$	53,997,879		$	51,592,332

The accompanying notes are an integral part of the condensed consolidated financial statements.

1

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	For the Three Months Ended September 30,
	2015			2014
Revenue	$	19,587,399		$	23,089,356
Cost of goods sold (exclusive of depreciation shown below)		14,363,734			20,166,431
Gross profit		5,223,665			2,922,925
Operating expense:
Selling, distribution and administrative (includes related party expenses of $0 and $11,000 for the three months ended September 30, 2015 and 2014, respectively)		3,902,694			7,888,383
Research and development		598,988			1,099,010
Restructuring expense		-			2,466,505
Depreciation and amortization		474,717			615,879
Total operating expenses		4,976,399			12,069,777
Income (loss) from operations		247,266			(9,146,852	)
Other income (expense):
Interest income		2			2,839
Interest expense		(1,583,501	)		(1,494,926	)
Related party interest expense		(138,300	)		(138,300	)
Decrease in fair value of liabilities under derivative contracts		2,005,783			8,813,540
Other (expense) income, net		(247,463	)		(138,877	)
Total other income		36,521			7,044,276
Income (loss) before income tax expense		283,787			(2,102,576	)
Income tax expense		14,443			-
Net income (loss)		269,344			(2,102,576	)
Foreign currency translation gain		241,736			60,574
Comprehensive income (loss)	$	511,080		$	(2,042,002	)
Basic and diluted net loss per weighted average common share attributable to controlling shareholders	$	(0.04	)	$	(0.04	)
Basic and diluted net loss per weighted average common share attributable to noncontrolling shareholders	$	(0.04	)	$	(0.04	)
Basic and diluted weighted average number of common shares outstanding attributable to controlling shareholders		303,817,578			255,194,735
Basic and diluted weighted average number of common shares outstanding attributable to noncontrolling shareholders		98,997,606			63,038,781

The accompanying notes are an integral part of the condensed consolidated financial statements.

2

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	For the Nine Months Ended September 30,
	2015			2014
Revenue	$	62,229,307		$	68,843,061
Cost of goods sold (exclusive of depreciation shown below)		50,658,859			62,705,900
Gross profit		11,570,448			6,137,161
Operating expense:
Selling, distribution and administrative (includes related party expenses of $0 and $880,000 for the nine months ended September 30, 2015 and 2014, respectively)		15,894,335			26,586,501
Research and development		2,833,298			4,177,616
Restructuring expense		297,770			2,672,350
Depreciation and amortization		1,468,860			2,692,202
Total operating expenses		20,494,263			36,128,669
Loss from operations		(8,923,815	)		(29,991,508	)
Other income (expense):
Interest income		1,165			3,475
Interest expense		(4,713,332	)		(4,779,245	)
Related party interest expense		(338,067	)		(338,067	)
Increase in fair value of liabilities under derivative contracts		(1,499,710	)		(18,682,848	)
Other (expense) income, net		(287,857	)		(36,862	)
Total other expense		(6,837,801	)		(23,833,547	)
Loss before income tax expense		(15,761,616	)		(53,825,055	)
Income tax expense		14,443			-
Net loss		(15,776,059	)		(53,825,055	)
Foreign currency translation gain		357,499			211,279
Comprehensive loss	$	(15,418,560	)	$	(53,613,776	)
Basic and diluted net loss per weighted average common share attributable to controlling shareholders	$	(0.12	)	$	(0.35	)
Basic and diluted net loss per weighted average common share attributable to noncontrolling shareholders	$	(0.12	)	$	(0.36	)
Basic and diluted weighted average number of common shares outstanding attributable to controlling shareholders		296,699,120			220,629,709
Basic and diluted weighted average number of common shares outstanding attributable to noncontrolling shareholders		98,591,636			53,029,108

The accompanying notes are an integral part of the condensed consolidated financial statements. 

3

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

(Unaudited)

	Common Stock						Additional Paid-in			Accumulated			Accumulated Other Comprehensive				Treasury
	Shares			Amount			Capital			Deficit			Loss			Stock			Total
Balance December 31, 2014		212,452,636		$	212,453		$	320,175,440		$	(800,328,573	)	$	(3,358,003	)	$	(3,757,500	)	$	(487,056,183	)
Issuance of restricted stock for directors' compensation		1,934,515			1,935			255,907			-			-			-			257,842
Stock based compensation expense		(66,000	)		(66	)		915,921			-			-			-			915,855
Stock issued under equity compensation plans		5,571			5			842			-			-			-			847
Issuance of Series J Warrants		-			-			8,144,213			-			-			-			8,144,213
Deemed dividends on Series J Redeemable Convertible Preferred Stock		-			-			(30,880,311	)		-			-			-			(30,880,311	)
Net loss		-			-			-			(15,776,059	)		-			-			(15,776,059	)
Foreign currency translation adjustment		-			-			-			-			357,499			-			357,499
Balance September 30, 2015		214,326,722		$	214,327		$	298,612,012		$	(816,104,632	)	$	(3,000,504	)	$	(3,757,500	)	$	(524,036,297	)

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities:
Net loss	$	(15,776,059	)	$	(53,825,055	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,468,860			2,692,202
Impairment of plant and equipment		-			41,555
Issuance of restricted stock for directors' compensation		257,842			412,451
Stock based compensation expense		915,855			1,901,285
Non-cash sales incentive		-			99,801
Allowance for doubtful accounts receivable		83,105			25,672
Write-down of inventory		853,160			1,491,365
Provision for losses on non-cancelable purchase commitments		115,926			-
Increase in fair value of derivative contracts		1,499,710			18,682,848
Amortization of debt issuance costs		1,131,106			1,299,931
Medley discount accretion		584,304			473,935
Interest accrued on Medley Term Loan		473,955			381,611
Loss on disposal of assets		30,793			639,490
Changes in operating assets and liabilities:
Accounts receivable		(2,718,024	)		(5,520,513	)
Inventories		(6,102,438	)		(5,434,495	)
Prepaid expenses		1,981,498			(1,287,842	)
Other current and long-term assets		(459,698	)		139,753
Accounts payable		(4,003,021	)		1,056,734
Accrued expenses and other liabilities		(1,892,901	)		1,790,940
Net cash used in operating activities		(21,556,027	)		(34,938,332	)
Cash flows from investing activities:
Purchases of property and equipment		(15,042	)		(420,116	)
Capitalized patents		(325,739	)		(687,079	)
Proceeds from sale of property and equipment		500			383,159
Net cash used in investing activities		(340,281	)		(724,036	)
Cash flows from financing activities:
Net proceeds (payments) from draws on lines of credit and other short-term borrowings		591,547			(28,056,176	)
Proceeds from long-term borrowings		-			29,775,000
Payment of short and long-term debt		(41,091	)		(4,050	)
Debt issuance costs		(338,749	)		(3,210,206	)
Decrease in restricted cash related to line of credit		-			2,000,000
Proceeds from issuance of common stock under equity compensation plans		847			5,462
Proceeds from issuance of Series J Redeemable Convertible Preferred Securities		21,538,000			25,475,000
Fees incurred on issuance of preferred stock		(1,149,098	)		(437,776	)
Net cash provided by financing activities		20,601,456			25,547,254
Effect of exchange rate changes on cash		259,666			157,732
Net decrease in cash		(1,035,186	)		(9,957,382	)
Cash and cash equivalents balance at beginning of period		1,609,297			11,195,412
Cash and cash equivalents balance at end of period	$	574,111		$	1,238,030
Supplemental disclosures:
Interest paid during the period	$	3,824,787		$	3,753,932
Non-cash investing and financing activities:
Deemed dividends on Series J Redeemable Convertible Preferred Stock	$	(30,880,311	)	$	(42,268,257	)
Reclass of Series J Warrants from liabilities to equity	$	-		$	37,646,300
Reclass of THD Warrant from equity to liabilities	$	-		$	(74,576	)
Fair value of Pegasus Guaranty included in debt issuance costs	$	-		$	(2,766,000	)
Deemed dividends on issuance of Pegasus Guaranty Warrants	$	-		$	(570,574	)
Issuance of Series J Warrants	$	8,144,213		$	3,849,742
Receivable for issuance of Series J Redeemable Convertible Preferred Stock	$	49,000		$	-

The accompanying notes are an integral part of the condensed consolidated financial statements.

5

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. Description of Business and Basis of Presentation

Overview

Lighting Science Group Corporation (the “Company”) was incorporated in Delaware in 1988 and designs, develops, manufactures and markets general illumination products that use light emitting diodes (“LEDs”) as their exclusive light source. The Company’s product portfolio includes LED-based retrofit lamps (replacement bulbs) used in existing light fixtures as well as purpose built LED-based luminaires (light fixtures). The Company’s lamps and luminaires are used for many common indoor and outdoor residential, commercial, industrial and public infrastructure lighting applications. The Company assembles and manufactures products primarily through its contract manufacturers in Asia.

Basis of Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) in accordance with the disclosure requirements for the quarterly report on Form 10-Q and therefore do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to fairly state the results for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2014 is derived from the Company’s audited financial statements. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results of the Company that may be expected for the year ending December 31, 2015. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2014 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2015.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the accompanying condensed consolidated financial statements.

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expense during the reporting periods. The Company’s actual results could differ from these estimates.

Restricted Cash

As of September 30, 2015 and December 31, 2014, as required by the Company’s five-year term loan (as amended from time to time, the “Medley Term Loan”) with Medley Capital Corporation (“Medley”), the Company maintained a minimum restricted cash balance of $3.0 million to collateralize the Medley Term Loan. Changes in the restricted cash balance are reflected as a financing activity in the consolidated statement of cash flows.

Accounts Receivable

The Company records accounts receivable at the invoiced amount when its products are shipped to customers or when specific milestone billing requirements are completed. The Company’s accounts receivable balance is recorded net of allowances for amounts not expected to be collected from customers. This allowance for doubtful accounts is the Company’s best estimate of probable credit losses in the Company’s existing accounts receivable. Estimates used in determining the allowance for doubtful accounts are based on historical collection experience, age of receivables and known collectability issues. The Company writes off accounts receivable when it becomes apparent, based on age or customer circumstances, that such amounts will not be collected. The Company reviews its allowance for doubtful accounts on a quarterly basis. Recovery of bad debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected. Generally, the Company does not require collateral for its accounts receivable and does not regularly charge interest on past due amounts. As of September 30, 2015 and December 31, 2014, the Company’s accounts receivable were reflected net of an allowance for doubtful accounts of $483,000 and $408,000, respectively.

6

As of September 30, 2015 and December 31, 2014, $6.6 million and $5.4 million, respectively, of eligible accounts receivable were pledged as collateral for the three-year asset based revolving credit facility (as amended from time to time, the “FCC ABL”) entered into on April 25, 2014 with FCC, LLC d/b/a First Capital (“First Capital”). First Capital sold the FCC ABL to ACF Finco I LP (“Ares”) in May 2015, and the FCC ABL is hereinafter referred to as the “Ares ABL.”

Revenue Recognition

The Company records revenue when its products are shipped and title passes to customers. When sales of products are subject to certain customer acceptance terms, revenue from such sales is recognized once those terms have been met. The Company also provides its customers with limited rights of return for non-conforming shipments or product warranty claims.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014‑09”). ASU 2014-09 seeks to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. ASU 2014‑09 initially was effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. However, at its July 9, 2015 meeting, the FASB agreed to defer by one year the mandatory effective date of this standard, but will also provide the option to adopt it as of the original effective date. The Company is currently evaluating the impact of adopting ASU 2014‑09, but the standard is not expected to have a significant effect on its consolidated financial statements.

Product Warranties

The Company generally provides a five-year limited warranty covering defective materials and workmanship of its products. Such warranty may require the Company to repair, replace or reimburse the purchaser for the purchase price of the product. The estimated costs related to warranties are accrued at the time products are sold based on various factors, including the Company’s stated warranty policies and practices, the historical frequency of claims and the cost to repair or replace its products under warranty. The warranty provision is included in accrued expenses on the condensed consolidated balance sheet. Changes in the warranty provision for the nine months ended September 30, 2015 were as follows:

Warranty provision as of December 31, 2014	$	4,789,470
Additions to provision		1,422,333
Less warranty costs		(2,518,190	)
Warranty provision as of September 30, 2015	$	3,693,613

Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

• Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

• Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, accounts payable, amounts due under lines of credit and other short term borrowings, accrued expenses and the note payable are carried at amounts that approximate their fair value due to the short-term maturity of these instruments and/or variable, market driven interest rates.

7

The liabilities under derivative contracts, which represent warrants to purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), were initially recorded at fair value and subsequently reflected at their fair value at the end of each reporting period. The fair value of the warrant issued to The Home Depot, Inc. (the “THD Warrant”) in January 2011 is determined using the Monte Carlo valuation method and will be adjusted at each reporting date until the underlying shares have been earned for each year. Such adjustments will be recorded as a reduction in the related revenue (sales incentive) from The Home Depot, Inc. (“The Home Depot”). Once a portion of the THD Warrant vests it is recorded at its fair value at the end of each subsequent reporting period.

Reclassification

Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net loss or stockholders’ deficit.

Note 3. Liquidity and Capital Resources 

As shown in the condensed consolidated financial statements, the Company has experienced significant historical net losses as well as negative cash flows from operations since its inception, resulting in an accumulated deficit of $816.1 million and stockholders’ deficit of $524.0 million as of September 30, 2015. As of September 30, 2015, the Company had cash and cash equivalents of $574,000 and an additional $3.0 million in restricted cash subject to a cash collateral dominion agreement pursuant to the Medley Term Loan. The Company’s cash expenditures primarily relate to procurement of inventory, payment of salaries, employee benefits and other operating costs.

The Company’s primary sources of liquidity have historically been borrowings from Ares under the Ares ABL, from Medley under the Medley Term Loan and from other previous lenders, as well as sales of Common Stock and Preferred Stock (as defined below) to, and short-term loans from, affiliates of Pegasus Capital Advisors, L.P. (“Pegasus Capital”), including Pegasus Partners IV, L.P. (“Pegasus IV”), LSGC Holdings LLC (“LSGC Holdings”), LSGC Holdings II LLC (“Holdings II”), LSGC Holdings III LLC (“Holdings III”) and PCA LSG Holdings, LLC (“PCA Holdings” and collectively with Pegasus Capital, Pegasus IV, LSGC Holdings, Holdings II, Holdings III and their affiliates, “Pegasus”). Pegasus is the Company’s controlling stockholder.

The Company obtained the five-year, $30.5 million Medley Term Loan from Medley on February 19, 2014, pursuant to a Term Loan Agreement (as amended from time to time the “Medley Loan Agreement”). Pursuant to the Medley Loan Agreement, the Company is required to achieve a minimum quarterly fixed charge coverage ratio for the preceding 12-month period and to maintain certain minimum EBITDA levels. In connection with the Medley Term Loan, the Company issued a warrant to purchase 5,000,000 shares of Common Stock to each of Medley and Medley Opportunity Fund II LP (the “Medley Warrants”).

The Company also obtained a three-year revolving credit facility with a maximum line amount of $22.5 million from Ares on April 25, 2014, pursuant to the terms of a Loan and Security Agreement (as amended from time to time, the “Ares ABL Agreement”). As of September 30, 2015, the Company had $7.0 million in borrowings outstanding under the Ares ABL Agreement and additional borrowing capacity of $9.1 million. The maximum borrowing capacity under the Ares ABL Agreement is based on a formula of eligible accounts receivable and inventory. The AresABL Agreement also requires the Company to achieve a minimum quarterly fixed charge coverage ratio for the preceding 12-month period.

On September 30, 2015, September 11, 2015 and January 30, 2015, the Company issued 62, 10,000 and 11,525 units of its Series J securities (“Series J Securities”), respectively, to Holdings III and certain other purchasers, at a purchase price of $1,000 per Series J Security for aggregate gross proceeds of $21.6 million. Each Series J Security consists of (i) one share of Series J Convertible Preferred Stock (“Series J Preferred Stock”) and (ii) a warrant to purchase 2,650 shares of Common Stock, at an exercise price of $0.001 per share (the “Series J Warrants”).

The Company continues to face challenges in its efforts to achieve positive cash flows from operations and profitability. The Company’s ability to continue to meet its obligations in the ordinary course of business is dependent upon establishing profitable operations, which may be supplemented by any additional funds raised through public or private financing or increased borrowing capacity.

8

The Company’s largest customer, The Home Depot, performed a periodic product line review in June 2015 relating to its entire private label LED lighting product offering. As a result of this line review, the Company entered into a new supplier buying agreement with The Home Depot that is expected to go into full effect in April or May 2016. In connection with the new supplier buying agreement, The Home Depot has elected to purchase certain products previously supplied by the Company directly from overseas suppliers. Such products represented a significant percentage of the Company’s sales to The Home Depot in 2015 and 2014. The Company was, however, selected to supply certain new products to The Home Depot and will continue to supply certain other products that the Company sold to The Home Depot under its prior agreement. In addition, the terms of the new supplier buying agreement with The Home Depot permit the Company to pursue opportunities to sell products to specified big box and other retailers, which was prohibited under its prior agreement. Notwithstanding the new agreement, as was the case under the Company’s prior agreement with The Home Depot, The Home Depot is not required to purchase any minimum amount of products from the Company. As a result of the line review, the Company expects 2016 sales to The Home Depot and, as a result, total revenue, to be significantly reduced. However, because the Company cannot reasonably estimate at this time the extent to which such reduced revenue may be offset by sales of the new products to The Home Depot, as well as by any potential new sales to other retailers, the Company cannot determine at this time the overall impact that the results of The Home Depot line review will have on the Company’s financial condition and operations in the future.

As a result of the Company’s historical losses, the Company believes it will likely need to raise additional capital to fund its operations. Sources of additional capital may not be available in an amount or on terms that are acceptable to the Company, if at all. The Company’s complex capital structure, including its obligations to the holders of the outstanding shares of its Preferred Stock (as well as the shares of Series K Preferred Stock that it will be required to issue upon posting the Appeal Bond (as defined below)), may make it more difficult to raise additional capital from new or existing investors or lenders. If the Company is not able to raise such additional capital, the Company may need to restructure or refinance its existing obligations, which restructuring or refinancing would require the consent and cooperation of the Company’s creditors and certain stockholders. In such event, such restructuring or refinancing may not be accomplished on terms that are acceptable to the Company, if at all. If the Company is unable to obtain sufficient capital when needed, the Company’s business, compliance with its credit facilities and future prospects may be adversely affected.

RW LSG Holdings LLC (“Riverwood”) and Pegasus each have the right to cause the Company to redeem their shares of Series H Convertible Preferred Stock (“Series H Preferred Stock”) and Series I Convertible Preferred Stock (“Series I Preferred Stock”) and collectively with the Series H Preferred Stock and the Series J Preferred Stock, the “Preferred Stock”), respectively, at any time on or after March 27, 2017. If either Riverwood or Pegasus elects to cause the Company to redeem its shares of Series H Preferred Stock or Series I Preferred Stock, all other holders of the applicable series will similarly have the right to request the redemption of their shares of Preferred Stock. In addition, Portman Limited (“Portman”) and affiliates of Zouk Holdings Limited acting together, have a contractual right to require the Company to redeem their respective shares of Series H Preferred Stock on or after March 27, 2017, subject to certain conditions and limitations. The Company is also required to redeem the outstanding shares of its Series J Preferred Stock (a) subject to certain limited exceptions, immediately prior to the redemption of the Series H Preferred Stock, Series I Preferred Stock or any other security that ranks junior to the Series J Preferred Stock and (b) on November 14, 2019, at the election of the holders of Series J Preferred Stock (a “Special Redemption”). Holders of Preferred Stock would also have the right to require the Company to redeem such shares upon the uncured material breach of the Company’s obligations under its outstanding indebtedness or the uncured material breach of the terms of the certificates of designation governing the Preferred Stock. As of September 30, 2015, in the event the Company was required to redeem all of its outstanding shares of Preferred Stock, the Company’s maximum payment obligation would have been $512.1 million. The Company would be required to repay its outstanding obligations under the Medley Term Loan and the Ares ABL prior to the redemption of any shares of Preferred Stock. As of September 30, 2015, the Company had $35.8 million of aggregate borrowings outstanding under these credit facilities.

Any redemption of the Preferred Stock would be limited to funds legally available therefor under Delaware law. The certificates of designation governing the Preferred Stock provide that if there is not a sufficient amount of cash or surplus available to pay for a redemption of Preferred Stock, then the redemption must be paid out of the remaining assets of the Company. In addition, the certificates of designation governing the Preferred Stock provide that the Company is not permitted or required to redeem any shares of Preferred Stock for so long as such redemption would result in an event of default under the Company’s credit facilities.

As of September 30, 2015, based solely on a review of the Company’s balance sheet, the Company did not have legally available funds under Delaware law to satisfy a redemption of its Preferred Stock. In addition, based solely on the Company’s projected balance sheet as of March 27, 2017, the Company does not believe that it will have legally available funds on or before March 27, 2017 to satisfy any such redemption.

The certificate of designation governing the Series H Preferred Stock also provides that upon the occurrence of a “control event,” the Company must take any and all actions required and permitted to fix the size of its board of directors to a size that would permit Riverwood (as the primary investor of the Series H Preferred Stock) to appoint a majority of the directors to the board until the Company satisfies or otherwise cures the obligations giving rise to the control event. A control event occurs if, among other things, Riverwood exercises its optional redemption right under the certificate of designation governing the Series H Preferred Stock and the Company is unable to redeem Riverwood’s Preferred Stock. If Riverwood were to exercise its optional redemption right and a control event were to occur, Riverwood could take control of the board of directors.

9

The certificate of designation governing the Series J Preferred Stock provides that if the Company does not have sufficient capital available to redeem the Series J Preferred Stock in connection with a Special Redemption of the Series J Preferred Stock, the Company will be required to issue a non-interest bearing note or notes (payable 180 days after issuance) in the principal amount of the liquidation amount of any shares of Series J Preferred Stock not redeemed by the Company in connection with such Special Redemption, subject to certain limitations imposed by Delaware law governing distributions to stockholders.

As discussed further in Note 13, one of the Company’s stockholders, Geveran Investments Limited (“Geveran”), filed a lawsuit against the Company and certain other defendants seeking, among other things, rescissionary damages in connection with its $25.0 million investment in the Company. On August 28, 2014, the court presiding over the lawsuit granted Geveran’s motion for partial summary judgment with respect to its cause of action for violation of the Florida securities laws (the “August 28^th Order”). It is anticipated that the August 28th Order will be entered by the court as a final judgment sometime in November 2015. Once the final judgment has been entered, the Company plans, within the 30-day period proscribed by Florida law, to file an appeal and, together with the other defendants, post a bond (the “Appeal Bond”), which will allow the Company to obtain an automatic stay of enforcement throughout the appeal process. Pegasus IV has agreed to assist the Company in securing the Appeal Bond on specified terms. Upon posting the Appeal Bond and as security for the potential payments to be made to the issuer of the Appeal Bond for draws upon it, the Company has agreed to issue to Pegasus IV units of the Company’s securities (the “Series K Securities”), with each Series K Security consisting of (a) one share of a newly designated series of preferred stock designated as Series K Preferred Stock and (b) a warrant to purchase 735 shares of Common Stock at an exercise price that will equal the prevailing market price of our Common Stock immediately prior to the issuance of such warrant. The shares of Series K Preferred Stock will be senior to the Company’s Common Stock and all other series of Preferred Stock. The number of Series K Securities to be issued to Pegasus IV will be determined upon posting the Appeal Bond and will be equal to the quotient obtained by dividing (x) the aggregate amount of the bonds, undertakings, guarantees and/or contractual obligations underlying Pegasus IV’s initial commitment with respect to the Appeal Bond by (y) $1,000. Although the Company cannot predict the ultimate outcome of this lawsuit, it believes the court’s summary judgment award in favor of Geveran is in error and that it has strong defenses against Geveran’s claims. However, in In the event that the Company is not successful on appeal, it could be liable for the full amount of Geveran’s $25.0 million investment, as well as interest, attorneys’ fees and court costs. Accordingly, the summary judgment and the Appeal Bond could have a material adverse effect on the Company’s liquidity and its ability to raise capital in the future.  

Note 4. Detail of Certain Balance Sheet Accounts

Inventories

Inventories consisted primarily of finished goods as of September 30, 2015 and December 31, 2014. As of September 30, 2015 and December 31, 2014, inventories were stated net of inventory write downs of $4.7 million and $7.9 million, respectively. The Company considered a number of factors in estimating the required inventory write downs, including (i) the focus of the business on the next generation of the Company’s products, which utilize lower cost technologies, (ii) the strategic focus on core products to meet the demands of key customers and (iii) the expected demand for the Company’s current generation of products, which is approaching the end of its lifecycle upon the introduction of the next generation of products.

Property and Equipment, Net

Depreciation related to property and equipment was $454,000 and $599,000 for the three months ended September 30, 2015 and 2014, respectively. Depreciation related to property and equipment was $1.4 million and $2.6 million for the nine months ended September 30, 2015 and 2014, respectively.

10

Intangible Assets

Intangible assets that have finite lives are amortized over their useful lives. The Company’s intangible assets as of September 30, 2015 and December 31, 2014 are detailed below:

	Cost, Less Impairment Charges		Accumulated Amortization			Net Book Value		Estimated Remaining Useful Life (years)
September 30, 2015:
Technology and intellectual property	$	3,091,026	$	(285,651	)	$	2,805,375	0.9	to	20.0
December 31, 2014:
Technology and intellectual property	$	2,796,580	$	(224,101	)	$	2,572,479	2.7	to	20.0

Total intangible asset amortization expense was $21,000 and $17,000 for the three months ended September 30, 2015 and 2014, respectively. Total intangible asset amortization expense was $62,000 and $46,000 for the nine months ended September 30, 2015 and 2014, respectively.

Note 5. Debt Issuance Costs

The Company capitalizes its costs related to the issuance of long-term debt and amortizes these costs using the effective interest rate method over the life of the loan. Amortization of debt issuance costs and the accelerated write-off of debt issuance costs in connection with refinancing activities are recorded as a component of interest expense. As of September 30, 2015, the current portion of the debt issuance costs was $1.6 million and was included in other current assets. In connection with the Ares ABL and the Medley Term Loan, $6.0 million of debt issuance costs were capitalized, including $2.8 million related to the fair value of the guaranty of the Company’s obligations under the Medley Loan Agreement in favor of Medley (the “Pegasus Guaranty”) provided by Pegasus Capital Partners IV, L.P. and Pegasus Capital Partners V, L.P. (collectively, the “Pegasus Guarantors”). The Company amortized $398,000 and $312,000 of debt issuance costs for the three months ended September 30, 2015 and 2014, respectively. The Company amortized $1.1 million and $1.3 million of debt issuance costs for the nine months ended September 30, 2015 and 2014, respectively.

Note 6. Lines of Credit and Note Payable

Facility	September 30, 2015		December 31, 2014
FCC ABL, revolving line of credit	$	6,960,340	$	6,368,793
Medley Term Loan		28,871,320		27,813,061
	$	35,831,660	$	34,181,854

Ares ABL

On April 25, 2014, the Company, entered into the Ares ABL, which provides the Company with a maximum borrowing capacity of $22.5 million, which capacity is based on a formula of eligible accounts receivable and inventory. As of September 30, 2015, the Company had additional borrowing capacity of $9.1 million. As of September 30 2015, eligible collateral included $6.6 million of accounts receivable and $10.0 million of inventory. Borrowings under the Ares ABL bear interest at a floating rate equal to one-month LIBOR plus 5.5% per annum. As of September 30, 2015, the interest rate on the Ares ABL was 5.7%.

On September 11, 2015, the Company entered into an amendment to the Ares ABL, which among other things (i) increased the interest margin payable under the Ares ABL by 150 basis points, such that the interest accrues on the outstanding borrowings at a rate equal to LIBOR plus 5.5%, (ii) provided for a mandatory repayment in full of the obligations under the Ares ABL if the Company redeems the Series K Preferred Stock, (iii) allows the Company to enter into the Appeal Bond and certain related agreements without further consent or approval from Ares, (iv) provides that the Company must notify Ares of entry of the August 28^th Order within two business days of the entry thereof, and (v) adds certain events of default relating to the Geveran litigation.

11

Medley Term Loan

On February 19, 2014, the Company entered into the Medley Term Loan, which provided the Company with a $30.5 million term loan facility. The Medley Term Loan bears interest at a floating rate equal to three-month LIBOR plus 12% per annum, and as of September 30, 2015, the interest rate on the Medley Term Loan was 12.33%. Additionally, $3.0 million of the Medley Term Loan was funded directly into a deposit account to which Medley has exclusive access, to further secure the loan. The outstanding principal balance and all accrued and unpaid interest on the Medley Term Loan are due and payable on February 19, 2019. The Company recognized $195,000 of interest expense for the accretion of the discounts to the balance of the Medley Term Loan related to commitment fees and the Medley Warrants for both the three months ended September 30, 2015 and 2014, and $160,000 and $157,000 of accrued interest for the three months ended September 30, 2015 and 2014, respectively. The Company recognized $584,000 of interest expense for the accretion of the discounts to the balance of the Medley Term Loan related to commitment fees and the Medley Warrants and $474,000 of accrued interest for the nine months ended September 30, 2015, and $474,000 of interest expense for the accretion of the discounts to the balance of the Medley Term Loan related to the commitment fees and the Medley Warrants and $382,000 of accrued interest for the period from February 19, 2014 (date of issuance) to September 30, 2014.

On September 11, 2015, the Company entered into an amendment to the Medley Term Loan, which among other things, (i) amends the minimum EBITDA covenant levels with respect to each of the twelve-month period ended September 30, 2015, the twelve-month period ending December 31, 2015, the twelve-month period ending March 31, 2016 and the twelve-month period ending June 30, 2016 (collectively, the “ Specified Covenant Periods ”) to provide that a portion of the cash proceeds from the sale of Series J Securities on September 11, 2015 will be included in the calculation of EBITDA for such periods, (ii) amends the definition of “Fixed Charge Coverage Ratio” in the Medley Term Loan Agreement to provide that $10.0 million of the cash proceeds from the September 11, 2015 offering will be included in EBITDA for purposes of calculating the “Fixed Charge Coverage Ratio” for each of the Specified Covenant Periods, (iii) allows the Company to enter into the Appeal Bond and certain related agreements without further consent or approval from Medley and (iv) adds certain events of default relating to the Geveran litigation.

Note 7. Fair Value Measurements

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2015, according to the valuation techniques the Company used to determine their fair values:

	Fair Value Measurement as of September 30, 2015
	Quoted Price in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3
Assets (Recurring):
Pegasus Commitment	$	-	$	-	$	286,400
Liabilities (Recurring):
Riverwood Warrants	$	-	$	-	$	2,817,004
September 2012 Warrants		-		-		286,400
Pegasus Warrant		-		-		1,557,000
THD Warrant		-		-		120,082
Medley Warrants		-		-		896,354
Pegasus Guaranty Warrants		-		-		1,026,214
	$	-	$	-	$	6,703,054

12

The following table is a reconciliation of the beginning and ending balances for assets and liabilities that were accounted for at fair value on a recurring basis using Level 3 inputs, as defined above, for the nine months ended September 30, 2015:

	Balance December 31, 2014			Realized and unrealized gains (losses) included in net loss			Purchases, sales, issuances and settlements		Transfers in or out of Level 3		Balance September 30, 2015
Pegasus Commitment	$	720,000		$	(433,600	)	$	-	$	-	$	286,400
Riverwood Warrants		(2,352,027	)		(464,977	)		-		-		(2,817,004	)
September 2012 Warrants		(720,000	)		433,600			-		-		(286,400	)
Pegasus Warrant		(1,300,000	)		(257,000	)		-		-		(1,557,000	)
THD Warrant		(43,928	)		(76,154	)		-		-		(120,082	)
Medley Warrants		(577,065	)		(319,289	)		-		-		(896,354	)
Pegasus Guaranty Warrants		(643,924	)		(382,290	)		-		-		(1,026,214	)
Total	$	(4,916,944	)	$	(1,499,710	)	$	-	$	-	$	(6,416,654	)

The following table is a reconciliation of the beginning and ending balances for assets and liabilities that were accounted for at fair value on a recurring basis using Level 3 inputs, as defined above, for the nine months ended September 30, 2014:

	Balance December 31, 2013			Realized and unrealized gains (losses) included in net loss			Purchases, sales, issuances and settlements			Transfers in or out of Level 3			Balance September 30, 2014
Pegasus Commitment	$	1,407,335		$	(367,335	)	$	-		$	-		$	1,040,000
Riverwood Warrants		(5,002,664	)		1,746,011			-			-			(3,256,653	)
September 2012 Warrants		(1,407,335	)		367,335			-			-			(1,040,000	)
Pegasus Warrant		(2,765,047	)		965,047			-			-			(1,800,000	)
THD Warrant		-			(39,867	)		-			(74,576	)		(114,443	)
Series J Warrants		-			(25,140,561	)		(12,505,739	)		37,646,300			-
Medley Warrants		-			1,847,049			(3,170,361	)		-			(1,323,312	)
Pegasus Guaranty Warrants		-			1,901,193			(3,336,574	)		-			(1,435,381	)
Total	$	(7,767,711	)	$	(18,721,128	)	$	(19,012,674	)	$	37,571,724		$	(7,929,789	)

Note 8. Stockholders’ Equity

For the three months ended September 30, 2015 and 2014, the Company recorded expense of $128,000 and $221,000, respectively, related to restricted stock awards to the Company’s directors. For the nine months ended September 30, 2015 and 2014, the Company recorded expense of $258,000 and $412,000, respectively, related to restricted stock awards to the Company’s directors.

On June 12, 2014, the Board approved the formation of a Scientific Advisory Board (the “SAB”) and issued restricted stock awards to each of the five members of the SAB as part of their compensation package. For the three and nine months ended September 30, 2015, the Company recorded expense of $0 and $37,000, respectively, related to restricted stock awards to the Company’s SAB. For the three and nine months ended September 30, 2014, the Company recorded expense of $26,000 and $31,000, respectively, related to restricted stock awards to the Company’s SAB.

13

Warrants for the Purchase of Common Stock

As of September 30, 2015, the following warrants for the purchase of Common Stock were outstanding:

Warrant Holder	Reason for Issuance	Number of Common Shares		Exercise Price		Expiration Date
Investors in rights offering	Series D Warrants		1,192,048	$	2.65 to $2.66	March 3, 2022 through April 19, 2022
The Home Depot	Purchasing agreement		8,456,432	$	0.95	December 31, 2015 through 2018
RW  LSG Management Holdings LLC	Riverwood Warrants		12,664,760		Variable	May 25, 2022
Certain other investors	Riverwood Warrants		5,427,751		Variable	May 25, 2022
Cleantech Europe II (A) LP	September 2012 Warrants		3,406,041	$	0.72	September 25, 2022
Cleantech Europe II (B) LP	September 2012 Warrants		593,959	$	0.72	September 25, 2022
Portman Limited	September 2012 Warrants		4,000,000	$	0.72	September 25, 2022
Aquillian Investments LLC	Private Placement Series H		830,508	$	1.18	September 25, 2017
Pegasus	Pegasus Warrant		10,000,000		Variable	May 25, 2022
Investors in Series J Follow-On Offering	Series J Warrants		212,164,300	$	0.001	January 3, 2019 through January 30, 2020
Medley	Medley Warrants		10,000,000	$	0.95	February 19, 2024
Pegasus	Pegasus Guaranty Warrants		10,000,000	$	0.50	February 19, 2024
			278,735,799

Note 9: Earnings (Loss) Per Share

In 2012, the Company determined that two classes of Common Stock had been established for financial reporting purposes only, with Common Stock attributable to controlling stockholders representing shares beneficially owned and controlled by Pegasus and the Common Stock attributable to noncontrolling stockholders representing the minority interest stockholders. For the three and nine months ended September 30, 2015 and 2014, the Company computed net loss per share of noncontrolling stockholders and controlling stockholders of Common Stock using the two-class method. Net loss from operations is initially allocated based on the underlying common shares held by controlling and noncontrolling stockholders. The allocation of the net losses attributable to the Common Stock attributable to controlling stockholders is then reduced by the amount of the deemed dividend related to the warrants issued to the Pegasus Guarantors, while the allocation of net losses attributable to the Common Stock attributable to noncontrolling stockholders is increased by the amount of the deemed dividend related to the warrants issued to the Pegasus Guarantors.

14

The following table sets forth the computation of basic and diluted net loss per share of Common Stock:

	For the Three Months Ended September 30,
	2015						2014
	Controlling Stockholders			Noncontrolling Stockholders			Controlling Stockholders			Noncontrolling Stockholders
Basic and diluted net income (loss) per share:
Net loss attributable to common stock	$	203,149		$	66,195		$	(1,686,077	)	$	(416,499	)
Deemed dividends related to the Series J Preferred Stock attributable to all shareholders		(11,742,251	)		(3,826,160	)		(9,571,504	)		(2,364,374	)
Undistributed net loss	$	(11,539,102	)	$	(3,759,965	)	$	(11,257,581	)	$	(2,780,873	)
Basic and diluted weighted average number of common shares outstanding		303,817,578			98,997,606			255,194,735			63,038,781
Basic and diluted net loss per common share	$	(0.04	)	$	(0.04	)	$	(0.04	)	$	(0.04	)

	For the Nine Months Ended September 30,
	2015						2014
	Controlling Stockholders			Noncontrolling Stockholders			Controlling Stockholders			Noncontrolling Stockholders
Basic and diluted net income per share:
Net loss attributable to common stock	$	(11,841,266	)	$	(3,934,793	)	$	(43,394,934	)	$	(10,430,121	)
Deemed dividends due to the issuance of Pegasus Guaranty Warrants as compensation for guaranty provided by controlling shareholders		-			-			570,574			(570,574	)
Deemed dividends related to the Series J Preferred Stock attributable to all shareholders		(23,178,283	)		(7,702,028	)		(34,077,591	)		(8,190,666	)
Undistributed net loss	$	(35,019,549	)	$	(11,636,821	)	$	(76,901,951	)	$	(19,191,361	)
Basic and diluted weighted average number of common shares outstanding		296,699,120			98,591,636			220,629,709			53,029,108
Basic and diluted net loss per common share	$	(0.12	)	$	(0.12	)	$	(0.35	)	$	(0.36	)

Basic earnings per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the applicable period. The Series J Warrants have an exercise price of $0.001 per share of Common Stock, and are included in the weighted average number of shares of Common Stock outstanding as there are no conditions that must be satisfied before such warrant may be exercised into the shares of Common Stock underlying such warrants. Diluted earnings per share is computed in the same manner as basic earnings per share except the number of shares is increased to assume exercise of potentially dilutive stock options, unvested restricted stock and contingently issuable shares using the treasury stock method and convertible preferred shares using the if-converted method, unless the effect of such increases would be anti-dilutive. The Company had 213.3 million and 177.1 million common stock equivalents for the three months ended September 30, 2015 and 2014, respectively, and 209.8 million and 190.4 million common stock equivalents for the nine months ended September 30, 2015 and 2014, respectively, which were not included in the diluted net loss per common share as the common stock equivalents were anti-dilutive, as a result of the Company being in a net loss position.

Note 10: Related Party Transactions

Pegasus Capital is an affiliate of Pegasus IV and LSGC Holdings, which are the Company’s largest stockholders and beneficially owned approximately 90.0% of the Common Stock as of September 30, 2015.

On September 11, 2015 and January 30, 2015, the Company issued an additional 10,000 and 11,525 units of Series J Securities, at a purchase price of $1,000 per Series J Security for aggregate gross proceeds of $21.5 million. The Series J Securities were issued pursuant to subscription agreements between the Company and Holdings III, an affiliate of Pegasus Capital.

15

Note 11. Restructuring Expense

The following table summarizes the Company’s restructuring expense and related charges for the periods indicated:

	For the Nine Months Ended September 30,
	2015		2014
Broad based reduction of facilities and personnel (1)	$	297,770	$	2,558,072
Organization Optimization Initiative (2)		-		114,278
Total	$	297,770	$	2,672,350

(1) These charges relate to a significant cost reduction plan initiated during the fourth quarter of 2013 that includes outsourcing of a majority of the Company’s manufacturing to its contract manufacturers in Asia, related workforce reductions in Satellite Beach, Florida and cost reductions in its foreign subsidiaries. The Company estimates it will incur $200,000 in additional expenses throughout this cost reduction plan, primarily related to additional headcount reductions. These additional costs are expected to be incurred during 2015.

(2) In September 2011, the Company initiated a restructuring plan designed to further increase efficiencies across the organization and lower the overall cost structure. In 2012, the Company extended the restructuring plan to further increase efficiencies across the organization and lower its overall cost structure. The plan included a significant reduction in full time headcount and the closing of the Company’s offices in the United Kingdom and Australia. For the nine months ended September 30, 2014, these expenses related to the final liquidation of the Australian entity.

As of September 30, 2015, the accrued liability associated with the restructuring and other related charges consisted of the following:

	Workforce Reduction			Excess Facilities			Other Exit Costs			Total
Accrued liability as of December 31, 2014	$	959,240		$	353,269		$	138,840		$	1,451,349
Charges		297,770			-			-			297,770
Payments		(1,162,030	)		(82,247	)		(1,013	)		(1,245,290	)
Accrued liability as of September 30, 2015	$	94,980		$	271,022		$	137,827		$	503,829

The remaining accrual of $504,000 as of September 30, 2015 is expected to be paid during the year ending December 31, 2016.

The restructuring and other related charges are included in the line item restructuring expense in the condensed consolidated statement of operations and comprehensive loss.

Note 12. Concentrations of Credit Risk

For the three months ended September 30, 2015 and 2014, revenue derived from sales to The Home Depot represented 89% and 82%, respectively, of the Company’s total revenue. For the nine months ended September 30, 2015 and 2014, revenue derived from sales to The Home Depot represented 88% and 78%, respectively, of total revenue.

As of September 30, 2015 and December 31, 2014, The Home Depot accounts receivable balance represented 78% and 77%, respectively, of the Company’s total accounts receivable, net of allowances.

Note 13. Commitments and Contingencies

The Company is subject to the possibility of loss contingencies arising in its business. Such contingencies are accounted for in accordance with ASC Topic 450, “Contingencies.” In determining loss contingencies, the Company considers the possibility of a loss and the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is considered probable that a liability has been incurred and when the amount of loss can be reasonably estimated.

16

Legal Proceedings

In the ordinary course of business, the Company is routinely a party to various pending and threatened legal claims and proceedings. While the ultimate outcome of these matters cannot be predicted with certainty, based on information currently available and advice of counsel, and taking into account available insurance coverage, except as noted below, the Company does not believe that the outcome of any of these claims will have a material adverse effect on its business, financial condition or results of operations. However, the results of legal proceedings cannot be predicted with certainty, and in the event of unexpected future developments the ultimate resolution of one or more of these matters could be unfavorable. Should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the consolidated financial position or operating results could be materially adversely affected. Regardless of the outcome, any litigation may require the Company to incur significant expenses and may result in significant diversion of management’s attention. Further, during its ordinary course of business, the Company enters into obligations to defend, indemnify and/or hold harmless various customers, officers, directors, employees, and other third parties. These contractual obligations could give rise to additional litigation costs and involvement in court proceedings.

Geveran Investments Limited v. Lighting Science Group Corporation, et al. (the “Geveran Case”)

On June 22, 2012, Geveran Investments Limited (“Geveran”), one of the Company’s stockholders, filed a lawsuit against the Company and several other defendants in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida. On October 30, 2012, the court entered an order transferring the lawsuit to the Ninth Judicial Circuit in and for Orange County, Florida. The Geveran Case names the Company as a defendant, as well as Pegasus Capital and nine other entities affiliated with Pegasus Capital; Richard Weinberg, our former Director and former interim Chief Executive Officer and a former partner of Pegasus Capital; Gregory Kaiser, a former Chief Financial Officer; J.P. Morgan Securities, LLC (“J.P. Morgan”); and two employees of J.P. Morgan. Geveran seeks rescissionary damages in connection with its $25.0 million investment in the Company, as well as recovery of interest, attorneys’ fees and court costs, jointly and severally against the Company, Pegasus Capital, Mr. Weinberg, Mr. Kaiser, J.P. Morgan and the two J.P. Morgan employees, for alleged violations of Florida securities laws. Geveran alternatively seeks unspecified money damages, as well as recovery of court costs, for alleged common law negligent misrepresentation against these same defendants. In August 2014, the court granted Geveran’s motion to amend their first amended complaint to assert a claim for punitive damages against the defendants.

On August 28, 2014, the court issued the August 28^th Order. It is anticipated that the August 28th Order will be entered by the court as a final judgment sometime in November 2015. Once the final judgment has been entered, the Company plans, within the 30-day period proscribed by Florida law, to file an appeal and, together with the other defendants, post the Appeal Bond, which will result in the automatic stay of enforcement throughout the appeal process.

While the outcome of any appeal is inherently difficult to predict, the Company believes that the trial court’s grant of summary judgment to plaintiff was in error. In the event that the summary judgment is overturned on appeal, and the case were to be remanded back to the trial court for further proceedings, the Company believes it has strong defenses against Geveran’s claims. The Company denies liability in connection with this matter and intends to continue to vigorously defend itself against the claims asserted by Geveran. However, in the event that the Company is not successful on appeal, it could be liable for the full amount of Geveran’s $25.0 million investment, as well as interest, attorneys’ fees and court costs. Even if the Company is successful on appeal and the case were to be remanded back to the trial court for further proceedings, the amount of possible loss, if any, cannot be reasonably estimated at this time. The Company believes that, subject to the terms and conditions of the relevant policies (including retention and policy limits), directors’ and officers’ insurance coverage will be available to cover the substantial majority of its legal fees and costs in this matter. However, given the unspecified nature of Geveran’s maximum damage claims, insurance coverage may not be available for, or such coverage may not be sufficient to fully pay, a judgment or settlement in favor of Geveran. Based upon the terms of an indemnification agreement described below, the Company has also paid, and is likely to pay in the in the future, reasonable legal expenses incurred by J.P. Morgan and its affiliates in this lawsuit in connection with the engagement of J.P. Morgan as placement agent for the private placement with Geveran. Such payments are not covered by the Company’s insurance policies. The engagement letter executed with J.P. Morgan provides that the Company will indemnify J.P. Morgan and its affiliates from liabilities relating to J.P. Morgan’s activities as placement agent, unless such activities are finally judicially determined to have resulted from J.P. Morgan’s bad faith, gross negligence or willful misconduct. Accordingly, the outcome of the Geveran Case, if unfavorable, would likely have a material adverse effect on the Company’s financial position.

17

GE Lighting Solutions v. Lighting Science Group Corporation, et al.

The Company is also a defendant in an action brought by GE Lighting Solutions LLC (“GE Lighting”) in Federal District Court for the Northern District of Ohio in or about January 2013. GE Lighting asserts a claim of infringement by the Company, as well as five other LED manufacturers, of U.S. Patent No. 6,787,999, entitled LED-Based Modular Lamp, and U.S. Patent No. 6,799,864, entitled High Power LED Power Pack for Spot Module Illumination, and seeks monetary damages and an injunction. The Company denies liability in connection with this matter, asserts non-infringement defenses, and also asserts that the patents include terms that are indefinite and thus are invalid. On August 5, 2015, the Federal District Court granted the Company’s summary judgment motion invalidating the two GE patents at issue for indefiniteness, and dismissing GE’s patent infringement claims against the Company and the other defendants.  On September 2, 2015, GE filed an appeal with the U.S. Court of Appeal for the Federal Circuit. The appellate court could reverse the judgment and remand the case back to the Federal District Court for further proceedings. A ruling is not expected on GE’s appeal for nine to twelve months.

Other

In addition, the Company may be a party to a variety of legal actions, such as employment and employment discrimination-related suits, employee benefit claims, breach of contract actions, tort claims, shareholder suits, including securities fraud, intellectual property related litigation, and a variety of legal actions relating to its business operations. In some cases, substantial punitive damages may be sought. The Company currently has insurance coverage for certain of these potential liabilities. Other potential liabilities may not be covered by insurance, insurers may dispute coverage or the amount of insurance may not be sufficient to cover the damages awarded. In addition, certain types of damages, such as punitive damages, may not be covered by insurance and insurance coverage for all or certain forms of liability may become unavailable or prohibitively expensive in the future.

18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This section and other parts of this Quarterly Report on Form 10-Q (this “Form 10-Q”) contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can be identified by words such as “expects,” “anticipates,” “could,” “intends,” “seeks,” “estimates,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2015 (the “Form 10-K”) and the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q. Our results of operations in any past period should not be considered indicative of the results to be expected for future periods. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A of the Securities Act of 1933, as amended (the “Securities Act”) and 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Company Overview

We are an innovator and provider of light emitting diode (“LED”) lighting technology. We design, develop, manufacture and market advanced illumination products that use LEDs as their exclusive light source. Our product portfolio includes LED-based retrofit lamps (replacement bulbs) used in existing light fixtures as well as purpose-built LED-based luminaires (light fixtures). Our lamps and luminaires are used for many common indoor and outdoor residential, commercial, industrial and public infrastructure lighting applications. We have also developed LED lighting technology whose light and color are tuned to achieve specific biological effects. We believe our proprietary technology, unique designs and key relationships throughout the LED lighting supply chain position us favorably to capitalize on the expanding acceptance of LEDs as a lighting source.

Our strategic plan consists of creating strong digital lighting brands in the consumer, residential, commercial and industrial markets. We believe that developing innovative and differentiated brands will deliver strong financial returns and a more loyal user base that is less price sensitive. We intend to continue to implement a nimble and agile “go-to-market” business model and manufacturing and product development system to streamline the processes used to introduce new products. We also intend to continue focusing on developing breakthrough innovation and on becoming a market maker in targeted value-added, high-margin segments within the lighting market. Finally, we plan to reduce our cost structure, preserve cash flow and strengthen liquidity to enhance our financial position.

We have also focused on expanding and optimizing our global supply chain to meet forecasted demand for our products while addressing the inefficiencies that have compressed our gross margin and overall financial performance in prior periods such as costs incurred to expedite the production or delivery of component parts. We anticipate long-term gross margin improvement as we continue to execute on our initiatives. We completed one of our most critical initiatives in 2014 with the transition of the manufacturing of our high volume lamps from Mexico and Satellite Beach, Florida to our contract manufacturing partners in Asia, from which we source the majority of our components. We began this transition in the third quarter of 2013, and completed it during the first half of 2014. We anticipate these actions will result in improved gross margin, as well as a more optimized product supply in future periods.

We continue to focus on increasing our brand awareness and improving our product promotion through prominent displays at our retailers and by conducting high visibility national media promotions with our key customers. Specifically, we continue to work with major media outlets, grant interviews and work with key consumer influencers to gain greater visibility for our brand and our scientifically proven technology.

19

Financial Results

The following table sets forth our revenue, cost of goods sold and gross profit for the three and nine months ended September 30, 2015 and 2014:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenue	$	19,587,399		$	23,089,356		$	62,229,307		$	68,843,061
Cost of goods sold		14,363,734			20,166,431			50,658,859			62,705,900
Gross profit	$	5,223,665		$	2,922,925		$	11,570,448		$	6,137,161
GAAP gross profit percentage		26.7	%		12.7	%		18.6	%		8.9	%

Our revenue is primarily derived from sales of our LED-based retrofit lamps and luminaires. Our revenue decreased $3.5 million during the three months ended September 30, 2015, as compared to the three months ended September 30, 2014. This decrease in revenue primarily resulted from an $881,000 decrease in sales to The Home Depot, Inc. (“The Home Depot”) and a $2.6 million decrease in sales to other customers. Our revenue decreased $6.6 million during the nine months ended September 30, 2015, as compared to the nine months ended September 30, 2014. This decrease in revenue primarily resulted from an $8.6 million decrease in sales to customers other than The Home Depot, which was partially offset by a $2.0 million increase in sales to The Home Depot. Our gross margin increased from 8.9% to 18.6% for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014. Our gross margin improvement during this period was primarily attributed to our transition to lower cost contract manufacturers in Asia, which was substantially complete as of June 30, 2014.

We continue to pursue new relationships with retailers and original equipment manufacturers (“OEMs”) to help increase our sales. In addition, we have significantly increased the roster of distributors and independent sales agents that sell our products and added experienced professionals to our direct sales force to increase the frequency and impact of our activities with key national accounts that are targets for potential adoption of LED lighting.

Our gross margins are principally driven by the mix and quantity of products we sell to The Home Depot and our other customers. Our financial results are dependent upon the operating costs associated with our supply chain, including materials, labor and freight, and the level of selling, distribution and administrative, research and development and other operating expense. We continuously seek to improve our existing products and bring new products to market. As a result, many of our products have short life cycles and, therefore, product life cycle planning is critical. New product introductions, if not properly coordinated with end-of life transitions, can lead to inventory write-downs and provisions for expected losses on non-cancellable purchase commitments. When these circumstances are present, we may also incur additional expense as we adjust our supply chain and product life-cycle planning.

Non-GAAP Financial Measures

Although our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), we believe the following non-GAAP financial measures provide additional information that is useful to the assessment of our operating performance and trends. As part of our ongoing review of financial information related to our business, we regularly use non-GAAP measures, particularly non-GAAP adjusted gross profit percentage and non-GAAP adjusted operating expense as a percentage of revenue, as we believe they provide meaningful insight into our business and useful information with respect to the results of our operations. These non-GAAP financial measures are not in accordance with, nor are they a substitute for, the comparable GAAP financial measures, and are intended to supplement our financial results that are prepared in accordance with GAAP.

The adjusted presentation below is used by management to measure our business performance and provides useful information regarding the trend in gross margin percentage based on revenue from sales of our products to customers. Excluding the impact of the provisions for inventory write-offs, our non-GAAP adjusted gross profit percentage was 28.5% and 20.2% for the three and nine months ended September 30, 2015, respectively, compared to 14.4% and 11.1% for the three and nine months ended September 30, 2014, respectively. Excluding non-cash expense for stock based compensation, restructuring expense and depreciation and amortization, total operating expense decreased by 37.4% and 38.3% for the three and nine months ended September 30, 2015, respectively, while revenue decreased 15.2% and 9.6% compared to the three and nine months ended September 30, 2014, respectively. Total non-GAAP adjusted operating expense represented 29.1% and 28.2% of revenue for the three and nine months ended September 30, 2015, respectively, as compared to 39.4% and 41.3% of revenue for the three and nine months ended September 30, 2014, respectively. For the nine months ended September 30, 2015, the decrease in non-GAAP adjusted operating expense as a percentage of revenue was due to the decrease in operating expense, primarily driven by reductions in personnel-related expense.

20

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenue	$	19,587,399		$	23,089,356		$	62,229,307		$	68,843,061
Cost of goods sold		14,363,734			20,166,431			50,658,859			62,705,900
Deduct:
Provisions for inventory write-offs		368,058			397,316			969,086			1,491,365
Adjusted cost of goods sold		13,995,676			19,769,115			49,689,773			61,214,535
Adjusted gross profit	$	5,591,723		$	3,320,241		$	12,539,534		$	7,628,526
Non-GAAP adjusted gross profit percentage		28.5	%		14.4	%		20.2	%		11.1	%
Total operating expense	$	4,976,399		$	12,069,777		$	20,494,263		$	36,128,669
Less:
Issuance of restricted stock and stock options for directors compensation		128,377			213,083			257,842			412,451
Non-cash stock option and restricted stock compensation expense		(1,319,865	)		(317,259	)		915,855			1,901,285
Restructuring expense		-			2,466,505			297,770			2,672,350
Depreciation and amortization		474,717			615,879			1,468,860			2,692,202
Total operating expenses, excluding stock based compensation, restructuring and depreciation and amortization	$	5,693,170		$	9,091,569		$	17,553,936		$	28,450,381
GAAP operating expenses as a percentage of revenue		25.4	%		52.3	%		32.9	%		52.5	%
Non-GAAP adjusted operating expenses as a percentage of revenue		29.1	%		39.4	%		28.2	%		41.3	%

During 2013 and the first half of 2014, we adapted our supply chain and logistics processes to improve our ability to provide more efficient service to our customers and focus our efforts on developing innovative products. During the nine months ended September 30, 2015, we continued to make improvements in our forecasting and finished goods inventory management, continued the transition of our manufacturing processes to lower cost contract manufacturers in Asia and continued to enhance our new product innovation process.

We believe that the enhancements to our business initiated in 2013 and continued throughout 2014 and 2015 improved our management and manufacturing infrastructure, expanded our ability to source components and manufacture our products internationally and positioned us for organic growth. We believe these improvements will position us to capitalize on the innovative, science based and creative engineering talent at our Melbourne, Florida headquarters, which we believe provides us with a competitive advantage. In addition to developing products targeted at mainstream retail and commercial lighting, we will look to expand our product offerings to compete across multiple industry verticals.

LED Lighting Industry Trends

There are a number of industry factors that affect our business and results of operations including, among others:

● Rate and extent of adoption of LED lighting products. Our potential for growth is driven by the rate and extent of adoption of LED lighting within the general illumination market and our ability to affect this rate of adoption. Although the market for LED lighting has grown in recent years, adoption of LEDs for general lighting is still in the relatively early stages. Innovations and advancements in LED lighting technology that improve product performance and reduce product cost continue to enhance the value proposition of LED lighting for general illumination and expand its potential commercial applications.

21

● External legislation and subsidy programs concerning energy efficiency. The United States and many countries in the European Union and elsewhere, among others, have already instituted, or have announced plans to institute, government regulations and programs designed to encourage or mandate increased energy efficiency in lighting. These actions include in certain cases banning the sale after specified dates of certain forms of incandescent lighting, which is advancing the adoption of more energy efficient lighting solutions such as LEDs. In addition, the growing demand for electricity is increasingly driving utilities and governmental agencies to provide financial incentives such as rebates for energy efficient lighting technologies in an effort to mitigate the need for investments in new electrical generation capacity. While this trend is generally positive for us, from time to time there have been political efforts in the United States to change or limit the effectiveness of these regulations.

● Intellectual property. LED market participants rely on patented and non-patented proprietary information relating to product development, manufacturing capabilities and other core competencies of their business. Protection and licensing of intellectual property is critical. Therefore, LED lighting industry participants often take steps such as additional patent applications, confidentiality and non-disclosure agreements as well as other security measures. To enforce or protect intellectual property rights, market participants commonly commence or threaten litigation.

● Intense and constantly evolving competitive environment. Competition in the LED lighting market is intense. Many companies have made significant investments in LED lighting development and production equipment. Traditional lighting companies and new entrants are investing in LED based lighting products as LED adoption has gained momentum. Product pricing pressure is significant and market participants often undertake pricing strategies to gain or protect market share, enhance sales of their previously manufactured products and open new applications to LED based lighting solutions. To remain competitive, market participants must continuously increase product performance and reduce costs.

Recent Events

Our largest customer, The Home Depot, performed a periodic product line review in June 2015 relating to its entire private label LED lighting product offering. As a result of this line review, we entered into a new supplier buying agreement with The Home Depot that is expected to go into full effect sometime in April or May 2016. See additional discussion of the new supplier buying agreement under “Liquidity and Capital Resources” below.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and consolidated results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expense and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based upon historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates.

A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: (i) they require us to make assumptions about matters that are highly uncertain at the time of the estimate; and (ii) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known.

We believe that our critical accounting policies relate to our more significant estimates and judgments used in the preparation of our condensed consolidated financial statements. Our Annual Report on Form 10-K for the year ended December 31, 2014 contains a discussion of these critical accounting policies. There have been no significant changes in our critical accounting policies since December 31, 2014. See also Note 1 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2015 as set forth herein.

Results of Operations

Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014

The following table sets forth statement of operations data expressed as a percentage of total revenue for the periods indicated:

	Three Months Ended September 30,						Variance						Percentage of Revenue
	2015			2014			$			%			2015			2014
Revenue	$	19,587,399		$	23,089,356			(3,501,957	)		-15.2	%		100.0	%		100.0	%
Cost of goods sold		14,363,734			20,166,431			(5,802,697	)		-28.8	%		73.3	%		87.3	%
Selling, distribution and administrative		3,902,694			7,888,383			(3,985,689	)		-50.5	%		19.9	%		34.2	%
Research and development		598,988			1,099,010			(500,022	)		-45.5	%		3.1	%		4.8	%
Restructuring expense		-			2,466,505			(2,466,505	)		-100.0	%		0.0	%		10.7	%
Depreciation and amortization		474,717			615,879			(141,162	)		-22.9	%		2.4	%		2.7	%
Interest income		2			2,839			(2,837	)		-99.9	%		0.0	%		0.0	%
Interest expense, including related party		(1,721,801	)		(1,633,226	)		(88,575	)		5.4	%		-8.8	%		-7.1	%
Decrease in fair value of liabilities under derivative contracts		2,005,783			8,813,540			(6,807,757	)		-77.2	%		10.2	%		38.2	%
Other expense, net		(247,463	)		(138,877	)		(108,586	)		78.2	%		-1.3	%		-0.6	%
Income tax expense		14,443			-			14,443			100.0	%		0.1	%		0.0	%
Net income (loss)	$	269,344		$	(2,102,576	)		2,371,920			-112.8	%		1.4	%		-9.1	%

Revenue

Revenue decreased $3.5 million, or 15.2%, to $19.6 million for the three months ended September 30, 2015 from $23.1 million for the three months ended September 30, 2014. The decrease in revenue for the three months ended September 30, 2015 was primarily a result of an $881,000 decrease in sales to The Home Depot and a $2.6 million decrease in sales to multiple other customers.

Cost of Goods Sold

Cost of goods sold decreased $5.8 million, or 28.8%, to $14.4 million for the three months ended September 30, 2015 from $20.2 million for the three months ended September 30, 2014. The decrease in cost of goods sold was primarily due to the decrease in revenue. Cost of goods sold as a percentage of revenue decreased for the three months ended September 30, 2015 to 73.3% (or a gross margin percentage of 26.7%) as compared to 87.3% (or a gross margin percentage of 12.7%) for the three months ended September 30, 2014. The increase in the gross margin percentage for the three months ended September 30, 2015 compared to the three months ended September 30, 2014 was due primarily to the impact of our transition to lower cost contract manufacturers in Asia.

22

Selling, Distribution and Administrative

Selling, distribution and administrative expense decreased $4.0 million, or 50.5%, to $3.9 million for the three months ended September 30, 2015 from $7.9 million for the three months ended September 30, 2014, and decreased as a percentage of revenue to 19.9% for the three months ended September 30, 2015 from 34.2% for the three months ended September 30, 2014. The decrease in selling, distribution and administrative expense consisted of a $2.1 million decrease in personnel-related expense due to workforce reductions in 2014 and 2015, a $704,000 decrease in professional fees, a $526,000 decrease in materials and supplies, certifications and external testing due to the transition to contract manufacturing in Asia, a $426,000 decrease in fees paid to outside consultants and agents and a $248,000 decrease in facilities related expenses due to the relocation of our corporate headquarters.

Research and Development

Research and development expense decreased $500,000, or 45.5%, to $599,000 for the three months ended September 30, 2015 from $1.1 million for the three months ended September 30, 2014, and decreased as a percentage of revenue to 3.1% for the three months ended September 30, 2015 from 4.8% for the three months ended September 30, 2014. The decrease in research and development expense was primarily due to a $372,000 decrease in personnel related expense driven by the workforce reductions in 2014 and 2015 and a $101,000 decrease in fees paid to outside consultants and other research related costs.

Restructuring

Restructuring expense was $0 for the three months ended September 30, 2015 compared to $2.5 million for the three months ended September 30, 2014. Restructuring expense for the three months ended September 30, 2014 consisted of $1.8 million in severance and termination benefits and $622,000 for the write-down and disposal of tooling, production equipment.

Depreciation and Amortization

Depreciation and amortization expense decreased $141,000, or 22.9%, to $474,000 for the three months ended September 30, 2015 from $616,000 for the three months ended September 30, 2014. The decrease in depreciation and amortization expense was primarily a result of the disposal or impairment of manufacturing equipment and tools and molds during the year ended December 31, 2014 related to our restructuring efforts, which included a broad based reduction of facilities and personnel, resulting in a smaller depreciable base for the period.

Interest Expense, Including Related Party

Interest expense, including related party interest, increased $89,000, or 5.4%, to $1.7 million for the three months ended September 30, 2015 from $1.6 million for the three months ended September 30, 2014. The increase in interest expense was primarily due to the impact of the Company’s five-year term loan (as amended from time to time, the “Medley Term Loan”) with Medley Capital Corporation (“Medley”). Interest expense for the three months ended September 30, 2015 consisted of $1.3 million of interest expense and fees related to the Medley Term Loan, $138,000 of non-cash interest expense related to the amortization of the Pegasus Guaranty (as defined below) and $271,000 of interest expense and fees related to the three year asset based revolving credit facility (as amended from time to time, the “Ares ABL”) entered into on April 25, 2014 with ACF Finco I LP (as assignee of FCC, LLC d/b/a First Capital) (“Ares”). Interest expense for the three months ended September 30, 2014 consisted of $1.2 million of interest expense and fees related to the Medley Term Loan, $138,000 of non-cash interest expense related to the amortization of the Pegasus Guaranty and $267,000 of interest expense and fees related to the Ares ABL.

Increase in Fair Value of Liabilities under Derivative Contracts

On February 19, 2014, in connection with the consummation of the transactions contemplated by the Medley Loan Agreement, we issued a warrant to purchase 5,000,000 shares of our common stock, par value $0.001 per share (the “Common Stock”) to each of Medley and Medley Opportunity Fund II LP (the “Medley Warrants”). The Medley Warrants were accounted for as liabilities and their fair value was determined using the Black Scholes valuation method. Pegasus Capital Partners IV, L.P. and Pegasus Capital Partners V, L.P. (collectively, the “Pegasus Guarantors”) have agreed to provide a guaranty of our obligations under the Medley Loan Agreement in favor of Medley (the “Pegasus Guaranty”). As consideration for the Pegasus Guaranty, on February 19, 2014, we issued a warrant to purchase 5,000,000 shares of Common Stock to each of the Pegasus Guarantors (the “Pegasus Guaranty Warrants”). The Pegasus Guaranty Warrants were accounted for as liabilities and their fair value was determined using the Black Scholes valuation method. The fair value of the outstanding Medley Warrants and the Pegasus Guaranty Warrants decreased by $1.2 million for the three months ended September 30, 2015 and decreased by $3.5 million for the three months ended September 30, 2014. This change in fair value is impacted by a number of factors, including changes in the trading price of our Common Stock and changes in risk-free interest rates.

23

On September 11, 2013, we issued shares of our Series J Convertible Preferred Stock (“Series J Preferred Stock”) to LSGC Holdings II LLC (“Holdings II”) and certain other purchasers and issued a warrant to Holdings II (the “Pegasus Warrant”). The Pegasus Warrant was accounted for as a liability and its fair value was determined using the Monte Carlo valuation method. On May 25, 2012, we issued shares of our Series H Convertible Preferred Stock (the “Series H Preferred Stock”) to RW LSG Holdings LLC, an affiliate of Riverwood LSG Management Holdings LLC and Riverwood Capital Partners L.P. (collectively with their affiliates, “Riverwood”), and certain other purchasers and issued warrants to Riverwood (the “Riverwood Warrant”). The Riverwood Warrant was accounted for as a liability and its fair value was determined using the Monte Carlo valuation method. The fair value of the outstanding Pegasus Warrant and the Riverwood Warrant decreased by $840,000 for the three months ended September 30, 2015 and decreased by $5.3 million for the three months ended September 30, 2014. These changes in fair value are impacted by a number of factors, including the change of the strike price of the Riverwood Warrant and the Pegasus Warrant due to the issuance of the Series J Preferred Stock and Series J Warrants (as defined below), changes in the trading price of our Common Stock and changes in risk-free interest rates.

Other (Expense) Income, Net

Other (expense) income, net increased $109,000 for the three months ended September 30, 2015 to an expense of $248,000 compared to expense of $139,000 for the three months ended September 30, 2014. Other expense for the three months ended September 30, 2015 consisted of a $243,000 foreign exchange loss and $5,000 of miscellaneous expense. Other expense for the three months ended September 30, 2014 consisted of a $104,000 foreign exchange loss and $35,000 of miscellaneous expense.

Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014

	Nine Months Ended September 30,						Variance						Percentage of Revenue
	2015			2014			$			%			2015			2014
Revenue	$	62,229,307		$	68,843,061			(6,613,754	)		-9.6	%		100.0	%		100.0	%
Cost of goods sold		50,658,859			62,705,900			(12,047,041	)		-19.2	%		81.4	%		91.1	%
Selling, distribution and administrative		15,894,335			26,586,501			(10,692,166	)		-40.2	%		25.5	%		38.6	%
Research and development		2,833,298			4,177,616			(1,344,318	)		-32.2	%		4.6	%		6.1	%
Restructuring expense		297,770			2,672,350			(2,374,580	)		-88.9	%		0.5	%		3.9	%
Depreciation and amortization		1,468,860			2,692,202			(1,223,342	)		-45.4	%		2.4	%		3.9	%
Interest income		1,165			3,475			(2,310	)		-66.5	%		0.0	%		0.0	%
Interest expense, including related party		(5,051,399	)		(5,117,312	)		65,913			-1.3	%		-8.1	%		-7.4	%
(Increase) decrease in fair value of liabilities under derivative contracts		(1,499,710	)		(18,682,848	)		17,183,138			*			-2.4	%		-27.1	%
Other expense, net		(287,857	)		(36,862	)		(250,995	)		*			-0.5	%		-0.1	%
Income tax expense		14,443			-			14,443			100.0	%		0.0	%		0.0	%
Net loss	$	(15,776,059	)	$	(53,825,055	)		38,048,996			-70.7	%		-25.4	%		-78.2	%

* Variance is not meaningful.

Revenue

Revenue decreased $6.6 million, or 9.6%, to $62.2 million for the nine months ended September 30, 2015 from $68.8 million for the nine months ended September 30, 2014. The decrease in revenue for the nine months ended September 30, 2015 was primarily a result of an $8.6 million decrease in sales to multiple customers other than The Home Depot, partially offset by a $2.0 million increase in sales to The Home Depot.

Cost of Goods Sold

Cost of goods sold decreased $12.0 million, or 19.2%, to $50.7 million for the nine months ended September 30, 2015 from $62.7 million for the nine months ended September 30, 2014. The decrease in cost of goods sold was partially due to the corresponding decrease in revenue during the nine months ended September 30, 2015 as well as the impact of our transition to lower cost contract manufacturers in Asia.

Cost of goods sold as a percentage of revenue decreased for the nine months ended September 30, 2015 to 81.4% (or gross margin of 18.6%) as compared to 91.1% (or gross margin of 8.9%) for the nine months ended September 30, 2014. The decrease in cost of goods sold as a percentage of revenue during the nine months ended September 30, 2015 was primarily attributable to the impact of our transition to lower cost contract manufacturers in Asia.

24

Selling, Distribution and Administrative

Selling, distribution and administrative expense decreased $10.7 million, or 40.2%, to $15.9 million for the nine months ended September 30, 2015 from $26.6 million for the nine months ended September 30, 2014, and decreased as a percentage of revenue to 25.5% for the nine months ended September 30, 2015 from 38.6% for the nine months ended September 30, 2014. The decrease in selling, distribution and administrative expense consisted of a $4.6 million decrease in personnel related expense due to the workforce reductions in 2014 and 2015, a $2.4 million decrease in fees paid to outside consultants and agents, a $1.3 million decrease in facilities related expenses due to the relocation of our corporate headquarters, a $952,000 decrease in materials and supplies, certifications and external testing due to the transition to contract manufacturing in Asia, a $714,000 decrease in freight and logistics and a $670,000 decrease in professional fees.

Research and Development

Research and development expense decreased $1.3 million, or 32.2%, to $2.8 million for the nine months ended September 30, 2015 from $4.2 million for the nine months ended September 30, 2014, and decreased as a percentage of revenue to 4.6% for the nine months ended September 30, 2015 from 6.1% for the nine months ended September 30, 2014. The decrease in research and development expense was due to a $871,000 decrease in personnel related expense due to the workforce reductions in 2014 and 2015, a $177,000 decrease in fees paid to outside consultants and a decrease of $276,000 due to miscellaneous cost cutting measures.

Restructuring Expense

Restructuring expense decreased $2.4 million to $298,000 for the nine months ended September 30, 2015 from $2.7 million for the nine months ended September 30, 2014. Restructuring expense for the nine months ended September 30, 2015 consisted of severance and termination benefits related to headcount reductions in the United States. Restructuring expense for the nine months ended September 30, 2014 consisted of $2.0 million in severance and termination benefits related to headcount reductions in the United States, $622,000 for the write-down and disposal of tooling, production equipment and a net charge of $114,000 related to the final liquidation of our Australian subsidiary, partially offset by a reduction in estimated costs related to the winding down of our Indian subsidiary.

Depreciation and Amortization

Depreciation and amortization expense decreased $1.2 million, or 45.4%, to $1.5 million for the nine months ended September 30, 2015 from $2.7 million for the nine months ended September 30, 2014, and decreased as a percentage of revenue to 2.4% for the nine months ended September 30, 2015 from 3.9% for the nine months ended September 30, 2014. The decrease in depreciation and amortization expense was primarily a result of the disposal or impairment of manufacturing equipment and tools and molds during the year ended December 31, 2014 related to our restructuring efforts, which included a broad based reduction of facilities and personnel, resulting in a smaller depreciable base for the current period.

Interest Expense, Including Related Party

Interest expense, including related party interest, decreased $66,000, or 1.3%, to $5.1 million for the nine months ended September 30, 2015 from $5.1 million for the nine months ended September 30, 2014. The decrease in interest expense was primarily due to the impact of the Medley Term Loan and the Ares ABL replacing our previous credit facilities with Wells Fargo Bank N.A. (the “Wells Fargo ABL”) and the Ares Capital Corporation (the “Ares Letter of Credit Facility”). Interest expense for the nine months ended September 30, 2015 consisted of $3.8 million of interest expense and fees related to the Medley Term Loan, $415,000 non-cash interest expense related to the amortization of the Pegasus Guaranty and $835,000 of interest expense and fees related to the Ares ABL. Interest expense for the nine months ended September 30, 2014 consisted of $3.7 million of interest expense and fees related to the Medley Term Loan, $338,000 of non-cash interest expense related to the amortization of the Pegasus Guaranty, $398,000 of interest expense and fees related to the Ares ABL, $264,000 of interest expense and fees related to the Wells Fargo ABL and $426,000 of interest expense related to the Ares Letter of Credit Facility.

25

(Increase) Decrease in Fair Value of Liabilities under Derivative Contracts

The fair value of the outstanding Medley Warrants and the Pegasus Guaranty Warrants increased by $702,000 for the nine months ended September 30, 2015 and decreased by $3.7 million for the period from February 19, 2014 (the date of issuance of the Medley Warrants and the Pegasus Guaranty Warrants) to September 30, 2014. This change in fair value is impacted by a number of factors, including changes in the trading price of our Common Stock and changes in risk-free interest rates.

The fair value of the outstanding Pegasus Warrant and the Riverwood Warrants increased by $722,000 for the nine months ended September 30, 2015 and decreased by $2.7 million for the nine months ended September 30, 2014. These changes in fair value are impacted by a number of factors, including the change of the strike price of the Riverwood Warrants due to the issuance of the Series J Preferred Stock and Series J Warrants, changes in the trading price of our Common Stock and changes in risk-free interest rates.

Between January 3, 2014 and March 7, 2014, we issued an aggregate of 17,475 units of our securities (the “Series J Securities”) with each Series J Security consisting of (i) one share of our Series J Preferred Stock and (ii) a warrant to purchase 2,650 shares of our Common Stock at an exercise price of $0.001 per share (the “Series J Warrants”). The Series J Warrants issued as part of the Series J Securities were accounted for as liabilities through April 14, 2014, the effective date of an amendment to our Certificate of Incorporation increasing the authorized number of shares of Common Stock, at which point the Series J Warrants were deemed equity instruments. While the Series J Warrants were accounted for as a liability their fair value was determined using the Black Scholes valuation method. The change in fair value of the Series J Warrants was $25.1 million for the period from date of issuance of the Series J Warrants to April 14, 2014, which was included in the (increase) decrease in fair value of liabilities under derivative contracts in the consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2014. This change in fair value is impacted primarily by the valuation of the Series J Warrants as of April 14, 2014 based on the Black Scholes valuation method as compared to fair value at date of issuance based on an allocation of the cash received for the Series J Securities between the Series J Preferred Stock and the Series J Warrants.

Other Expense, Net

Other expense, net increased $251,000 for the nine months ended September 30, 2015 to net expense of $288,000 from net expense of $37,000 for the nine months ended September 30, 2014. Other expense for the nine months ended September 30, 2015 consisted of a $407,000 foreign exchange loss and $31,000 in miscellaneous expense, partially offset by $150,000 of miscellaneous income. Other expense for the nine months ended September 30, 2014 consisted of a $21,000 foreign exchange loss and $15,000 of miscellaneous expense.

Liquidity and Capital Resources

We have experienced significant historical net losses as well as negative cash flows from operations, resulting in an accumulated deficit of $816.1 million and stockholders’ deficit of $524.0 million as of September 30, 2015. As of September 30, 2015, we had cash and cash equivalents of $574,000 and an additional $3.0 million in restricted cash subject to a cash collateral dominion agreement pursuant to the Medley Term Loan. Our cash expenditures primarily relate to procurement of inventory and payment of salaries, benefits and other operating costs.

Our primary sources of liquidity have historically been borrowings from various lenders and sales of Common Stock and Preferred Stock to, and short-term loans from, affiliates of Pegasus Capital Advisors, L.P. (“Pegasus Capital”), including Pegasus Partners IV, L.P. (“Pegasus IV”), LSGC Holdings LLC (“LSGC Holdings”), Holdings II, LSGC Holdings III LLC (“Holdings III”) and PCA LSG Holdings, LLC (“PCA Holdings” and collectively with Pegasus Capital, Pegasus IV, LSGC Holdings, Holdings II, Holdings III and their affiliates, “Pegasus”). Pegasus is the Company’s controlling stockholder. While Pegasus has led many of our capital raises, the offerings of our Series H Preferred Stock, Series I Convertible Preferred Stock (the “Series I Preferred Stock and collectively with the Series H Preferred Stock and Series J Preferred Stock, the “Preferred Stock”) and Series J Preferred Stock also involved and/or were led by parties other than Pegasus.

The Ares ABL provides us with a maximum borrowing capacity of $22.5 million, which capacity is based on a formula of eligible accounts receivable and inventory. We are also required to achieve a minimum quarterly fixed charge coverage ratio for the preceding 12-month period under the AresABL. As of September 30, 2015, we had $7.0 million outstanding under the Ares ABL and additional borrowing capacity of $9.1 million.

26

On September 30, 2015, September 11, 2015 and January 30, 2015, we issued 62, 10,000 and 11,525 units, respectively, of our Series J Securities to Holdings III and certain other purchasers at a purchase price of $1,000 per Series J Security for aggregate gross proceeds of $21.6 million.

We continue to face challenges in our efforts to achieve positive cash flows from operations and profitability. Our ability to continue to meet our obligations in the ordinary course of business is dependent upon establishing profitable operations, which may be supplemented by any additional funds raised through public or private financing or increased borrowing capacity.

Our largest customer, The Home Depot, performed a periodic product line review in June 2015 relating to its entire private label LED lighting product offering. As a result of this line review, we entered into a new supplier buying agreement with The Home Depot that is expected to go into full effect in April or May 2016. Pursuant to the supplier buying agreement, The Home Depot has elected to purchase certain products previously supplied by us directly from overseas suppliers. Such products represented a significant percentage of our sales to The Home Depot in 2015 and 2014. We were, however, selected to supply certain new products to The Home Depot and will continue to supply certain other products that we sold to The Home Depot under our prior agreement. In addition, the terms of the new supplier buying agreement with The Home Depot permit us to pursue opportunities to sell products to specified big box and other retailers, which was prohibited under our prior agreement. Notwithstanding the new agreement, as was the case under our prior agreement with The Home Depot, The Home Depot is not required to purchase any minimum amount of products from us. As a result of the line review, we expect 2016 sales to The Home Depot and, as a result, total revenue, to be significantly reduced. However, because we cannot reasonably estimate at this time the extent to which such reduced revenue may be offset by sales of the new products to The Home Depot, as well as by any potential new sales to other retailers, we cannot determine at this time the overall impact that the results of The Home Depot line review will have on our financial condition and operations in the future.

As a result of our historical losses, we believe we will likely need to raise additional capital to fund our ongoing operations. Sources of additional capital may not be available in an amount or on terms that are acceptable to us, if at all. Our complex capital structure, including our obligations to the holders of the outstanding shares of our Preferred Stock (as well as the shares of Series K Preferred Stock that we will be required to issue upon posting the Appeal Bond (as defined below)), may make it more difficult to raise additional capital from new or existing investors or lenders. If we are not able to raise such additional capital, we may need to restructure or refinance our existing obligations, which restructuring or refinancing would require the consent and cooperation of our creditors and certain stockholders. In such event, such restructuring or refinancing may not be accomplished on terms that are acceptable to us, if at all. If we are unable to obtain sufficient capital when needed, our business, compliance with our credit facilities and future prospects may be adversely affected.

Riverwood and Pegasus each have the right to cause us to redeem their shares of Series H Preferred Stock and Series I Preferred Stock, respectively, at any time on or after March 27, 2017. If either Riverwood or Pegasus elects to cause us to redeem its shares of Series H Preferred Stock or Series I Preferred Stock, all other holders of the applicable series will similarly have the right to request the redemption of their shares of Series H Preferred Stock or Series I Preferred Stock. In addition, Portman Limited and affiliates of Zouk Holdings Limited, acting together have a contractual right to require us to redeem their respective shares of Series H Preferred Stock on or after March 27, 2017, subject to certain conditions and limitations. We are also required to redeem the outstanding shares of our Series J Preferred Stock (a) subject to certain limited exceptions, immediately prior to the redemption of the Series H Preferred Stock, Series I Preferred Stock or any other security that ranks junior to, or pari passu with, the Series J Preferred Stock and (b) on November 14, 2019, at the election of the holders of Series J Preferred Stock (a “Special Redemption”). Holders of our Preferred Stock would also have the right to require us to redeem such shares upon our uncured material breach of our obligations under our outstanding indebtedness or the uncured material breach of the terms of the certificates of designation governing the Preferred Stock. As of September 30, 2015, in the event we were required to redeem all of our outstanding shares of Preferred Stock, our maximum payment obligation would have been $512.1 million. We would be required to repay our outstanding obligations under the Medley Term Loan and the Ares ABL prior to any such redemption of shares of Series H, I or J Preferred Stock. As of September 30, 2015, we had $35.8 million of aggregate borrowings outstanding under these credit facilities.

Any redemption of the Series H Preferred Stock, Series I Preferred Stock or Series J Preferred Stock would be limited to funds legally available therefor under Delaware law. The certificates of designation governing the Preferred Stock provide that if there is not a sufficient amount of cash or surplus available to pay for a redemption of Series H Preferred Stock, Series I Preferred Stock or Series J Preferred Stock, then the redemption must be paid out of the remaining assets of the Company. In addition, the certificates of designation provide that we are not permitted or required to redeem any shares of Preferred Stock for so long as such redemption would result in an event of default under our credit facilities.

As of September 30, 2015, based solely on a review of our balance sheet, we did not have legally available funds under Delaware law to satisfy a redemption of our Preferred Stock. In addition, based solely on our projected balance sheet as of March 27, 2017, we do not believe that we will have legally available funds on or before March 27, 2017 to satisfy any such redemption.

27

The certificate of designation governing the Series H Preferred Stock also provides that upon the occurrence of a “control event,” we must take any and all actions required and permitted to fix the size of our board of directors to a size that would permit Riverwood (as the primary investor of the Series H Preferred Stock) to appoint a majority of the directors to the board until we satisfy or otherwise cure the obligations giving rise to the control event. A control event occurs if, among other things, Riverwood exercises its optional redemption right under the certificate of designation governing the Series H Preferred Stock and we are unable to redeem Riverwood’s Preferred Stock. If Riverwood were to exercise its optional redemption right and a control event were to occur, Riverwood could take control of the board of directors.

The certificate of designation governing the Series J Preferred Stock provides that if we do not have sufficient capital available to redeem the Series J Preferred Stock in connection with a Special Redemption of the Series J Preferred Stock, we will be required to issue a non-interest bearing note or notes (payable 180 days after issuance) in the principal amount of the liquidation amount of any shares of Series J Preferred Stock not redeemed by us in connection with such Special Redemption, subject to certain limitations imposed by Delaware law governing distributions to stockholders.

As discussed further in Note 13 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2015, one of our stockholders, Geveran Investments Limited (“Geveran”), filed a lawsuit against us and certain other defendants seeking, among other things, rescissionary damages in connection with its $25.0 million investment in the Company. On August 28, 2014, the court presiding over the lawsuit granted Geveran’s motion for partial summary judgment with respect to its cause of action for violation of the Florida securities laws (the “August 28^th Order”). It is anticipated that the August 28th Order will be entered by the court as a final judgment sometime in November 2015. Once the final judgment has been entered, the Company plans, within the 30-day period proscribed by Florida law, to file an appeal and, together with the other defendants, post a bond (the “Appeal Bond”), which will allow the Company to obtain an automatic stay of enforcement throughout the appeal process. Pegasus IV has agreed to assist us in securing the Appeal Bond on specified terms. Upon posting the Appeal Bond and as security for the potential payments to be made to the issuer of the Appeal Bond for draws upon it, we have agreed to issue to Pegasus IV units of our securities (the “Series K Securities”), with each Series K Security consisting of (a) one share of a newly designated series of preferred stock designated as Series K Preferred Stock and (b) a warrant to purchase 735 shares of Common Stock. The shares of Series K Preferred Stock will be senior to our Common Stock and all other series of Preferred Stock. The number of Series K Securities to be issued to Pegasus IV will be determined upon posting the Appeal Bond and will be equal to the quotient obtained by dividing (x) the aggregate amount of the bonds, undertakings, guarantees and/or contractual obligations underlying Pegasus IV’s initial commitment with respect to the Appeal Bond by (y) $1,000. Although we cannot predict the ultimate outcome of this lawsuit, we believe the court’s summary judgment award in favor of Geveran is in error and that we have strong defenses against Geveran’s claims. However, in the event that we are not successful on appeal, we could be liable for the full amount of Geveran’s $25 million investment, as well as interest, attorney’s fees and court costs. Accordingly, the summary judgment and the Appeal Bond could have a material adverse effect on our liquidity and our ability to raise capital in the future.  

Cash Flows

The following table summarizes our cash flow activities for the nine months ended September 30, 2015 and 2014:

	Nine Months Ended September 30,
Cash flow activities:	2015			2014
Net cash used in operating activities	$	(21,556,027	)	$	(34,938,332	)
Net cash used in investing activities		(340,281	)		(724,036	)
Net cash provided by financing activities		20,601,456			25,547,254

Operating Activities

Cash used in operating activities is net loss adjusted for certain non-cash items and changes in certain assets and liabilities. Net cash used in operating activities decreased to $21.6 million for the nine months ended September 30, 2015 from $34.9 million for the nine months ended September 30, 2014. Net cash used in operating activities for the nine months ended September 30, 2015 included certain non-cash reconciliation items comprised primarily of $2.2 million in amortization of debt issuance costs, accretion and interest accrual primarily on the Ares ABL and the Medley Term Loan, $1.5 million net increase in fair value of derivative contracts, $1.5 million in depreciation and amortization, $1.2 million of stock-based compensation expense and $853,000 in inventory write-downs. For the nine months ended September 30, 2014, net cash used in operating activities included certain non-cash reconciliation items comprised primarily of an $18.7 million increase in fair value of derivative contracts, $2.3 million of stock-based compensation expense, $2.7 million in depreciation and amortization, a $2.2 million in amortization of debt issuance costs, accretion and interest accrual primarily on the Ares ABL and the Medley Term Loan and a $1.5 million inventory write-down.

28

Changes in working capital also contributed to the decrease in net cash used in operating activities for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014. In the aggregate, working capital changes totaled a net use of cash of $13.2 million in the nine months ended September 30, 2015 compared to a net use of cash of $9.3 million in the nine months ended September 30, 2014. For the nine months ended September 30, 2015, the working capital changes consisted primarily of an increase in inventory of $6.1 million, a decrease in accounts payable of $4.0 million, an increase in accounts receivable of $2.7 million and a decrease in accrued expenses and other liabilities of $1.9 million, which was partially offset by a decrease in prepaid expenses of $2.0 million. For the nine months ended September 30, 2014 the working capital changes consisted primarily of an increase in accounts receivable of $5.5 million, inventories of $5.4 million and prepaid expenses of $1.3 million, which were partially offset by a $1.8 million increase in accrued expenses and other liabilities and a $1.1 million increase in accounts payable.

Investing Activities

Cash used in investing activities primarily relates to the purchase of property and equipment and capitalized patents. Net cash used in investing activities was $340,000 and $724,000 for the nine months ended September 30, 2015 and 2014, respectively. The cash used in investing activities for the nine months ended September 30, 2015 was primarily due to capitalized patents of $326,000. The cash used in investing activities for the nine months ended September 30, 2014 was due to capitalized patents of $687,000 and purchases of property and equipment of $420,000, partially offset by proceeds from the sale of property and equipment of $383,000.

Financing Activities

Cash provided by financing activities has historically been composed of net proceeds from various debt facilities and the issuance of Common Stock and preferred stock. Net cash provided by financing activities was $20.6 million and $25.5 million for the nine months ended September 30, 2015 and 2014, respectively. The cash provided by financing activities for the nine months ended September 30, 2015 included proceeds from the issuance of Series J Securities in January and September 2015 for aggregate gross proceeds of $21.5 million and net draws on our lines of credit and other short term borrowings of $592,000, partially offset by $1.1 million in fees incurred in connection with the issuance of Series J Securities and $339,000 in debt issuance costs. The cash provided by financing activities for the nine months ended September 30, 2014 included proceeds of $29.8 million on the Medley Term Loan and the issuance of Series J Preferred Stock for $25.5 million, partially offset by net payments on our lines of credit and other short term borrowings, including the net repayment of $28.1 million on the Wells Fargo ABL, the Ares Letter of Credit Facility, the Medley Term Loan and the Ares ABL, $3.2 million in debt issuance costs and $438,000 in fees and commissions paid in connection with the issuance of Series J Securities.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to provide reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (who is also our Principal Financial and Accounting Officer at this time (the “Certifying Officer”)), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

29

We carried out an evaluation under the supervision and with the participation of our management, including the Certifying Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, our management, including the Certifying Officer, concluded that, as of September 30, 2015, our disclosure controls and procedures were not effective at a reasonable assurance level because the remediation plans to address the material weaknesses identified in our Annual Report on Form 10-K for the year ended December 31, 2014 have not been fully tested.

Changes in Internal Control over Financial Reporting

Subsequent to December 31, 2014, the following are among the key actions taken to our internal controls, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting:

● We have reemphasized the importance of consistent application of the controls over the spreadsheet formulas used in the inventory valuation and enhanced the training of the personnel responsible for preparing and reviewing the spreadsheet; and

● We have implemented a reconciliation and confirmation process for our in-transit inventory on a monthly basis, as well as provided additional training of the personnel responsible for preparing and reviewing these transactions.

Although these actions have not been fully tested, we believe we have remediated the material weaknesses described in our Annual Report on Form 10-K for the year ended December 31, 2014.

Our leadership team, together with other senior executives and our board of directors, is committed to achieving and maintaining a strong control environment, high ethical standards and financial reporting integrity. This commitment has been and will continue to be communicated to, and reinforced with, our employees. Under the direction of our board of directors, management will continue to review and make changes to the overall design of our internal control environment, as well as policies and procedures to improve the overall effectiveness of our internal control over financial reporting and our disclosure controls and procedures.

Other than the measures discussed above, there were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Except as listed below, other items in Part II are omitted because the items are inapplicable or require no response.

Item 1. Legal Proceedings

For a description of material pending legal proceedings, see the discussion set forth under the heading “Legal Proceedings” in Note 14 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2015, which discussion is incorporated by reference herein.

Item 6. Exhibits

 See “Exhibit Index” for a description of our exhibits.

30

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LIGHTING SCIENCE GROUP CORPORATION
Date: November 13, 2015	By	/s/ Edward D. Bednarcik
		Edward D. Bednarcik
		Chief Executive Officer and Director
		(Principal Executive, Financial and Accounting Officer)

31

Exhibit Index

EXHIBIT NUMBER	DESCRIPTION
3.1	Amended and Restated Certificate of Incorporation of Lighting Science Group Corporation (previously filed as Exhibit 3.1 to the Annual Report on Form 10-K filed on March 31, 2015, File No. 0-20354, and incorporated herein by reference).
3.2	Amended and Restated Bylaws of Lighting Science Group Corporation (previously filed as Exhibit 3.1 to the Current Report on Form 8-K filed on December 28, 2010, File No. 0-20354, and incorporated herein by reference).
3.3	Certificate of Amendment to Amended and Restated Certificate of Incorporation (previously filed as Exhibit 3.3 to the Annual Report on Form 10-K filed on March 31, 2015, File No. 0-20354, and incorporated herein by reference).
4.1	Specimen Common Stock Certificate (previously filed as Exhibit 4.14 to Amendment No. 1 to the Registration Statement on Form S-1/A filed on January 12, 2010, File No. 333-162966, and incorporated herein by reference).
4.2	Amended and Restated Certificate of Designation of Series H Convertible Preferred Stock filed with the Secretary of State of Delaware on November 14, 2014 (previously filed as Exhibit 4.1 to the Current Report on Form 8-K filed on November 20, 2014, File No. 0-20354, and incorporated herein by reference).
4.3	Amended and Restated Certificate of Designation of Series I Convertible Preferred Stock filed with the Secretary of State of Delaware on November 14, 2014 (previously filed as Exhibit 4.2 to the Current Report on Form 8-K filed on November 20, 2014, File No. 0-20354, and incorporated herein by reference).
4.4	Amended and Restated Certificate of Designation of Series J Convertible Preferred Stock filed with the Secretary of State of Delaware on November 14, 2014 (previously filed as Exhibit 4.3 to the Current Report on Form 8-K filed on November 20, 2014, File No. 0-20354, and incorporated herein by reference).
4.4.1	Certificate of Increase of Series J Convertible Preferred Stock filed with the Secretary of State of Delaware on September 11, 2015 (previously filed as Exhibit 4.1 to the Current Report on Form 8-K filed on September 17, 2015, File No. 0-20354, and incorporated herein by reference).
4.5	Certificate of Designation of Series K Preferred Stock filed with the Secretary of State of Delaware on September 15, 2015 (previously filed as Exhibit 4.2 to the Current Report on Form 8-K filed on September 17, 2015, File No. 0-20354, and incorporated herein by reference).
4.6	Warrant Agreement, dated as of December 22, 2010, by and between Lighting Science Group Corporation and American Stock Transfer & Trust Company, LLC (previously filed as Exhibit 4.1 to the Current Report on Form 8-K filed on January 4, 2011, File No. 0-20354, and incorporated herein by reference).

32

EXHIBIT NUMBER	DESCRIPTION
4.7	Warrant to Purchase Common Stock of Lighting Science Group Corporation, dated January 13, 2011 and issued to The Home Depot, Inc. (previously filed as Exhibit 4.1 to the Current Report on Form 8-K filed on January 20, 2011, File No. 0-20354, and incorporated herein by reference).
4.8	Form of Warrant to Purchase Common Stock of Lighting Science Group Corporation, dated June 15, 2012 and issued to RW LSG Management Holdings LLC and certain other investors (previously filed as Exhibit 4.6 to Amendment No. 2 to the Registration Statement on Form S-1/A filed on September 27, 2012, File No. 333-172165, and incorporated herein by reference).
4.9	Warrant, dated as of September 25, 2012 and issued to Cleantech Europe II (A) LP (previously filed as Exhibit 4.1 to the Current Report on Form 8-K filed on September 27, 2012, File No. 0-20354, and incorporated herein by reference).
4.10	Warrant, dated as of September 25, 2012 and issued to Cleantech Europe II (B) LP (previously filed as Exhibit 4.2 to the Current Report on Form 8-K filed on September 27, 2012, File No. 0-20354, and incorporated herein by reference).
4.11	Warrant, dated as of September 25, 2012 and issued to Portman Limited (previously filed as Exhibit 4.3 to the Current Report on Form 8-K filed on September 27, 2012, File No. 0-20354, and incorporated herein by reference).
4.12	Warrant, dated as of September 11, 2013, by and between Lighting Science Group Corporation and LSGC Holdings II LLC (previously filed as Exhibit 4.4 to the Current Report on Form 8-K filed on September 13, 2013, File No. 0-20354, and incorporated herein by reference).
4.13	Warrant, dated as of January 3, 2014, by and between Lighting Science Group Corporation and LSGC Holdings II LLC (previously filed as Exhibit 4.4 to the Current Report on Form 8-K filed on January 8, 2014, File No. 0-20354, and incorporated herein by reference).
4.14	Warrant, dated as of January 3, 2014, by and between Lighting Science Group Corporation and PCA LSG Holdings LLC (previously filed as Exhibit 4.5 to the Current Report on Form 8-K filed on January 8, 2014, File No. 0-20354, and incorporated herein by reference).
4.15	Warrant, dated as of January 3, 2014, by and between Lighting Science Group Corporation and RW LSG Holdings LLC (previously filed as Exhibit 4.6 to the Current Report on Form 8-K filed on January 8, 2014, File No. 0-20354, and incorporated herein by reference).
4.16	Warrant, dated as of January 3, 2014, by and between Lighting Science Group Corporation and PCA LSG Holdings LLC (previously filed as Exhibit 4.7 to the Current Report on Form 8-K filed on January 8, 2014, File No. 0-20354, and incorporated herein by reference).

33

EXHIBIT NUMBER	DESCRIPTION
4.17	Warrant, dated as of January 3, 2014, by and between Lighting Science Group Corporation and LSGC Holdings II LLC (previously filed as Exhibit 4.8 to the Current Report on Form 8-K filed on January 8, 2014, File No. 0-20354, and incorporated herein by reference).
4.18	Warrant, dated as of January 3, 2014, by and between Lighting Science Group Corporation and RW LSG Holdings LLC (previously filed as Exhibit 4.9 to the Current Report on Form 8-K filed on January 8, 2014, File No. 0-20354, and incorporated herein by reference).
4.19	Warrant, dated as of February 19, 2014, by and between Lighting Science Group Corporation and Medley Capital Corporation (previously filed as Exhibit 4.1 to the Current Report on Form 8-K filed on February 25, 2014, File No. 0-20354, and incorporated herein by reference).
4.20	Warrant, dated as of February 19, 2014, by and between Lighting Science Group Corporation and Medley Opportunity Fund II LP (previously filed as Exhibit 4.2 to the Current Report on Form 8-K filed on February 25, 2014, File No. 0-20354, and incorporated herein by reference).
4.21	Warrant, dated as of February 19, 2014, by and between Lighting Science Group Corporation and Pegasus Capital Partners IV, L.P. (previously filed as Exhibit 4.4 to the Current Report on Form 8-K filed on February 25, 2014, File No. 0-20354, and incorporated herein by reference).
4.22	Warrant, dated as of February 19, 2014, by and between Lighting Science Group Corporation and Pegasus Capital Partners V, L.P. (previously filed as Exhibit 4.5 to the Current Report on Form 8-K filed on February 25, 2014, File No. 0-20354, and incorporated herein by reference).
4.22.1	Amended and Restated Registration Rights Agreement, dated as of January 23, 2009, by and between Lighting Science Group Corporation and Pegasus Partners IV, L.P. (previously filed as Exhibit 4.1 to the Current Report on Form 8-K filed on January 30, 2009, File No. 0-20354, and incorporated herein by reference).
4.23	Amendment to Amended and Restated Registration Rights Agreement, dated as of May 25, 2012, by and among Lighting Science Group Corporation, Pegasus Partners IV, L.P. and LSGC Holdings LLC (previously filed as Exhibit 10.5 to the Current Report on Form 8-K filed on June 1, 2012, File No. 0-20354, and incorporated herein by reference).
4.24	Registration Rights Agreement, dated January 14, 2011 between Lighting Science Group Corporation and The Home Depot, Inc. (previously filed as Exhibit 4.2 to the Current Report on Form 8-K filed on January 20, 2011, File No. 0-20354, and incorporated herein by reference).
4.25	Amended and Restated Registration Rights Agreement, dated as of September 25, 2012 by and among Lighting Science Group Corporation, RW LSG Holdings LLC, RW LSG Management Holdings LLC, Portman Limited, Cleantech Europe II (A) LP and Cleantech Europe II (B) LP (previously filed as Exhibit 10.6 to the Current Report on Form 8-K filed on September 27, 2012, File No. 0-20354, and incorporated herein by reference).

34

EXHIBIT NUMBER	DESCRIPTION
4.26	Registration Rights Agreement, dated as of February 19, 2014, by and between Lighting Science Group Corporation, Medley Capital Corporation and Medley Opportunity Fund II LP (previously filed as Exhibit 4.3 to the Current Report on Form 8-K filed on February 25, 2014, File No. 0-20354, and incorporated herein by reference).
4.27	Registration Rights Agreement, dated as of November 14, 2014, by and between Lighting Science Group Corporation, Serengeti Lycaon MM L.P. and Serengeti Opportunities MM L.P. (previously filed as Exhibit 10.2 to the Current Report on Form 8-K filed on November 20, 2014, File No. 0-20354, and incorporated herein by reference).
10.1	Preferred Stock Subscription and Support Agreement dated September 11, 2015 by and among Lighting Science Group Corporation, Pegasus Partners IV, L.P. and LSGC Holdings III LLC (previously filed as Exhibit 10.1 to the Current Report on Form 8-K filed on September 17, 2015, File No. 0-20354, and incorporated herein by reference).
10.2	Amendment No. 2 to Preferred Stock Subscription Agreement dated September 11, 2015 by and among Lighting Science Group Corporation, Cleantech Europe II (A) LP and Cleantech Europe II (B) LP (previously filed as Exhibit 10.2 to the Current Report on Form 8-K filed on September 17, 2015, File No. 0-20354, and incorporated herein by reference).
10.3	Mutual General Release Agreement dated September 11, 2015, by and between Lighting Science Group Corporation and RW LSG Holdings LLC (previously filed as Exhibit 10.3 to the Current Report on Form 8-K filed on September 17, 2015, File No. 0-20354, and incorporated herein by reference).
10.4	Third Letter Amendment to Loan and Security Agreement dated September 11, 2015 by and among Lighting Science Group Corporation, BioLogical Illumination, LLC, the financial institutions from time to time party thereto as lenders and ACF FinCo I LP, as assignee of FCC, LLC, d/b/a First Capital (previously filed as Exhibit 10.4 to the Current Report on Form 8-K filed on September 17, 2015, File No. 0-20354, and incorporated herein by reference).
10.5	Consents regarding issuance of Series J Convertible Preferred Stock and Series K Preferred Stock and amendments to the Amended and Restated Series H Certificate of Designation, the Amended and Restated Series I Certificate of Designation, and the Amended and Restated Series J Certificate of Designation; Agreements with respect to Specified Customer provisions in Loan Agreement, dated September 11, 2015, by and between Lighting Science Group Corporation and ACF FinCo I LP (previously filed as Exhibit 10.5 to the Current Report on Form 8-K filed on September 17, 2015, File No. 0-20354, and incorporated herein by reference).
10.6	Third Amendment to Term Loan Agreement dated September 11, 2015 by and among Lighting Science Group Corporation, Medley Capital Corporation and the lenders party thereto (previously filed as Exhibit 10.6 to the Current Report on Form 8-K filed on September 17, 2015, File No. 0-20354, and incorporated herein by reference).

35

EXHIBIT NUMBER	DESCRIPTION
10.7	Consents regarding issuance of Series J Convertible Preferred Stock and Series K Preferred Stock and amendment to the Amended and Restated Series J Certificate of Designation; Confirmation with respect to Customer 1 and related provisions in Loan Agreement, dated September 11, 2015, by and between Lighting Science Group Corporation and Medley Capital Corporation (previously filed as Exhibit 10.7 to the Current Report on Form 8-K filed on September 17, 2015, File No. 0-20354, and incorporated herein by reference).
10.8	Employment Agreement, dated October 20, 2015, by and between Lighting Science Group Corporation and Fredric Maxik, (previously filed as Exhibit 10.1 to the Current Report on Form 8-K filed on October 26, 2015, File No. 0-20354, and incorporated herein by reference).
31.1*	Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

____________________

*

Filed herewith.

**

The certification attached as Exhibit 32.1 is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Lighting Science Group Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

36

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL AND

ACCOUNTING OFFICER PURSUANT TO RULE 13A-14(A) OF THE SECURITIES EXCHANGE ACT

OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY

ACT OF 2002

I, Edward D. Bednarcik, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Lighting Science Group Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2015	By:	/s/ Edward D. Bednarcik
	Name:	Edward D. Bednarcik
	Title:	Chief Executive Officer and Director (Principal Executive, Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Lighting Science Group Corporation (the “Company”) for the period ended September 30, 2015 (the “Report”), the undersigned hereby certifies in his capacity as Principal Executive Officer and Principal Financial and Accounting Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the undersigned’s knowledge:

(1)	the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2015	By:	/s/Edward D. Bednarcik
		Name:	Edward D. Bednarcik
		Title:	Chief Executive Officer and Director (Principal Executive, Financial and Accounting Officer)

XML

Note 8 - Stockholders' Equity (Details Textual)		3 Months Ended		9 Months Ended
	Jun. 12, 2014	Sep. 30, 2015 USD ($)	Sep. 30, 2014 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2014 USD ($)
Restricted Stock [Member] | Director [Member]
Allocated Share-based Compensation Expense		$ 128,000	$ 221,000	$ 258,000	$ 412,000
Restricted Stock [Member] | Scientific Advisory Board [Member]
Allocated Share-based Compensation Expense		$ 0	$ 26,000	37,000	31,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Recipients	5
Allocated Share-based Compensation Expense				$ 257,842	$ 412,451

XML

Note 12 - Concentrations of Credit Risk (Details Textual) - Customer Concentration Risk [Member]	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Sales Revenue, Net [Member]
Concentration Risk, Percentage	89.00%	82.00%	88.00%	78.00%
Accounts Receivable [Member]
Concentration Risk, Percentage			78.00%		77.00%

XML

Note 11 - Restructuring Expense - Restructuring Expense and Related Charges (Details) - USD ($)		9 Months Ended
		Sep. 30, 2015	Sep. 30, 2014
Facility Closing [Member]
Charges		$ 297,770	$ 2,558,072	[1]
Organization Optimization Initiative [Member]
Charges	[2]		114,278
Charges		$ 297,770	$ 2,672,350

[1] These charges relate to a significant cost reduction plan initiated during the fourth quarter of 2013 that includes moving the majority of the Company's manufacturing to its contract manufacturers in Asia, related workforce reductions in Satellite Beach, Florida and cost reductions in our foreign subsidiaries. The Company estimates it will incur $200,000 in additional expenses throughout this cost reduction plan, primarily related to additional headcount reductions. These additional costs are expected to be incurred during 2015.

[2] In September 2011, the Company began implementing a restructuring plan designed to further increase efficiencies across the organization and lower the overall cost structure. In 2012, the Company extended the restructuring plan to further increase efficiencies across the organization and lower its overall cost structure. The plan included a significant reduction in full time headcount and the closing of the Company's offices in the United Kingdom and Australia. For the nine months ended September 30, 2014, these expenses related to the final liquidation of the Australian entity.

XML

Note 4 - Detail of Certain Balance Sheet Accounts - Summary of Intangible Assets (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Technology and Intellectual Property [Member] | Minimum [Member]
Estimated Remaining Useful Life	328 days	2 years 255 days
Technology and Intellectual Property [Member] | Maximum [Member]
Estimated Remaining Useful Life	20 years	20 years
Technology and Intellectual Property [Member]
Cost, Less Impairment Charges	$ 3,091,026	$ 2,796,580
Accumulated Amortization	(285,651)	(224,101)
Net Book Value	2,805,375	2,572,479
Net Book Value	$ 2,805,375	$ 2,572,479

XML

Note 7 - Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2015

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

	Fair Value Measurement as of September 30, 2015
	Quoted Price in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3
Assets (Recurring):
Pegasus Commitment	$	-	$	-	$	286,400
Liabilities (Recurring):
Riverwood Warrants	$	-	$	-	$	2,817,004
September 2012 Warrants		-		-		286,400
Pegasus Warrant		-		-		1,557,000
THD Warrant		-		-		120,082
Medley Warrants		-		-		896,354
Pegasus Guaranty Warrants		-		-		1,026,214
	$	-	$	-	$	6,703,054

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

	Balance December 31, 2014			Realized and unrealized gains (losses) included in net loss			Purchases, sales, issuances and settlements		Transfers in or out of Level 3		Balance September 30, 2015
Pegasus Commitment	$	720,000		$	(433,600	)	$	-	$	-	$	286,400
Riverwood Warrants		(2,352,027	)		(464,977	)		-		-		(2,817,004	)
September 2012 Warrants		(720,000	)		433,600			-		-		(286,400	)
Pegasus Warrant		(1,300,000	)		(257,000	)		-		-		(1,557,000	)
THD Warrant		(43,928	)		(76,154	)		-		-		(120,082	)
Medley Warrants		(577,065	)		(319,289	)		-		-		(896,354	)
Pegasus Guaranty Warrants		(643,924	)		(382,290	)		-		-		(1,026,214	)
Total	$	(4,916,944	)	$	(1,499,710	)	$	-	$	-	$	(6,416,654	)

	Balance December 31, 2013			Realized and unrealized gains (losses) included in net loss			Purchases, sales, issuances and settlements			Transfers in or out of Level 3			Balance September 30, 2014
Pegasus Commitment	$	1,407,335		$	(367,335	)	$	-		$	-		$	1,040,000
Riverwood Warrants		(5,002,664	)		1,746,011			-			-			(3,256,653	)
September 2012 Warrants		(1,407,335	)		367,335			-			-			(1,040,000	)
Pegasus Warrant		(2,765,047	)		965,047			-			-			(1,800,000	)
THD Warrant		-			(39,867	)		-			(74,576	)		(114,443	)
Series J Warrants		-			(25,140,561	)		(12,505,739	)		37,646,300			-
Medley Warrants		-			1,847,049			(3,170,361	)		-			(1,323,312	)
Pegasus Guaranty Warrants		-			1,901,193			(3,336,574	)		-			(1,435,381	)
Total	$	(7,767,711	)	$	(18,721,128	)	$	(19,012,674	)	$	37,571,724		$	(7,929,789	)

XML

Note 9 - Earnings (Loss) Per Share - Computation of Basic and Diluted Net Loss Per Share of Common Stock (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Controlling Shareholders [Member] | Series J Preferred Stock [Member]
Deemed dividends related to the Series J Preferred Stock attributable to all shareholders	$ (11,742,251)	$ (9,571,504)	$ (23,178,283)	$ (34,077,591)
Controlling Shareholders [Member]
Net loss attributable to common stock	203,149	(1,686,077)	(11,841,266)	(43,394,934)
Undistributed net loss	$ (11,539,102)	$ (11,257,581)	$ (35,019,549)	$ (76,901,951)
Basic and diluted weighted average number of common shares outstanding (in shares)	303,817,578	255,194,735	296,699,120	220,629,709
Basic and diluted net loss per weighted average common share (in dollars per share)	$ (0.04)	$ (0.04)	$ (0.12)	$ (0.35)
Noncontrolling Shareholders [Member] | Series J Preferred Stock [Member]
Deemed dividends related to the Series J Preferred Stock attributable to all shareholders	$ (3,826,160)	$ (2,364,374)	$ (7,702,028)	$ (8,190,666)
Noncontrolling Shareholders [Member]
Net loss attributable to common stock	66,195	(416,499)	(3,934,793)	(10,430,121)
Undistributed net loss	$ (3,759,965)	$ (2,780,873)	$ (11,636,821)	$ (19,191,361)
Basic and diluted weighted average number of common shares outstanding (in shares)	98,997,606	63,038,781	98,591,636	53,029,108
Basic and diluted net loss per weighted average common share (in dollars per share)	$ (0.04)	$ (0.04)	$ (0.12)	$ (0.36)
Net loss attributable to common stock	$ 283,787	$ (2,102,576)	$ (15,761,616)	$ (53,825,055)

XML

Note 7 - Fair Value Measurements - Financial Assets and Liabilities Accounted For at Fair Value on a Recurring Basis (Details) - Fair Value, Measurements, Recurring [Member]	Sep. 30, 2015 USD ($)
Fair Value, Inputs, Level 1 [Member] | Pegasus Commitment [Member]
Pegasus Commitment
Fair Value, Inputs, Level 1 [Member] | Riverwood Warrants [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 1 [Member] | September Two Thousand Twelve Warrants [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 1 [Member] | Pegasus Warrant [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 1 [Member] | THD Warrant [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 1 [Member] | Medley Warrant [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 1 [Member] | Pegasus Guaranty Warrants [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 1 [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 2 [Member] | Pegasus Commitment [Member]
Pegasus Commitment
Fair Value, Inputs, Level 2 [Member] | Riverwood Warrants [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 2 [Member] | September Two Thousand Twelve Warrants [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 2 [Member] | Pegasus Warrant [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 2 [Member] | THD Warrant [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 2 [Member] | Medley Warrant [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 2 [Member] | Pegasus Guaranty Warrants [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 2 [Member]
Liabilities, Fair Value Disclosure, Recurring
Fair Value, Inputs, Level 3 [Member] | Pegasus Commitment [Member]
Pegasus Commitment	$ 286,400
Fair Value, Inputs, Level 3 [Member] | Riverwood Warrants [Member]
Liabilities, Fair Value Disclosure, Recurring	2,817,004
Fair Value, Inputs, Level 3 [Member] | September Two Thousand Twelve Warrants [Member]
Liabilities, Fair Value Disclosure, Recurring	286,400
Fair Value, Inputs, Level 3 [Member] | Pegasus Warrant [Member]
Liabilities, Fair Value Disclosure, Recurring	1,557,000
Fair Value, Inputs, Level 3 [Member] | THD Warrant [Member]
Liabilities, Fair Value Disclosure, Recurring	120,082
Fair Value, Inputs, Level 3 [Member] | Medley Warrant [Member]
Liabilities, Fair Value Disclosure, Recurring	896,354
Fair Value, Inputs, Level 3 [Member] | Pegasus Guaranty Warrants [Member]
Liabilities, Fair Value Disclosure, Recurring	1,026,214
Fair Value, Inputs, Level 3 [Member]
Liabilities, Fair Value Disclosure, Recurring	$ 6,703,054

XML

Note 11 - Restructuring Expense - Accrued Liability Associated with Restructuring Charges (Details) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2015
Facility Closing [Member]
Accrued liability		$ 959,240
Charges		297,770
Payments		(1,162,030)
Accrued liability	$ 94,980	94,980
Excess Facilities [Member]
Accrued liability		$ 353,269
Charges
Payments		$ (82,247)
Accrued liability	271,022	271,022
Other Exit Costs [Member]
Accrued liability		$ 138,840
Charges
Payments		$ (1,013)
Accrued liability	$ 137,827	137,827
Accrued liability		1,451,349
Charges		297,770
Payments		(1,245,290)
Accrued liability	$ 503,829	$ 503,829

XML

Note 2 - Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Significant Accounting Policies [Text Block]

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expense during the reporting periods. The Company’s actual results could differ from these estimates.

Restricted Cash

As of September 30, 2015 and December 31, 2014, as required by the Company’s five-year term loan (as amended from time to time, the “Medley Term Loan”)

with Medley Capital Corporation (“Medley”), the Company maintained a minimum restricted cash balance of $3.0 million to collateralize the

Medley Term Loan. Changes in the restricted cash balance are reflected as a financing activity in the consolidated statement of cash flows.

Accounts Receivable

The Company records accounts receivable at the invoiced amount when its products are shipped to customers or when specific milestone billing requirements are completed. The Company’s accounts receivable balance is recorded net of allowances for amounts not expected to be collected from customers. This allowance for doubtful accounts is the Company’s best estimate of probable credit losses in the Company’s existing accounts receivable. Estimates used in determining the allowance for doubtful accounts are based on historical collection experience, age of receivables and known collectability issues. The Company writes off accounts receivable when it becomes apparent, based on age or customer circumstances, that such amounts will not be collected. The Company reviews its allowance for doubtful accounts on a quarterly basis. Recovery of bad debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected. Generally, the Company does not require collateral for its accounts receivable and does not regularly charge interest on past due amounts. As of September 30, 2015 and December 31, 2014, the Company’s accounts receivable were reflected net of an allowance for doubtful accounts of $483

,000 and $408,000, respectively.

As of September 30, 2015 and December 31, 2014, $6.6 million and $5.4 million, respectively, of eligible accounts receivable were pledged as collateral for the three-year asset based revolving credit facility (as amended from time to time, the “FCC ABL”) entered into on April 25, 2014 with FCC, LLC d/b/a First Capital (“First Capital”). First Capital sold the FCC ABL to ACF Finco I LP (“Ares”) in May 2015, and the FCC ABL is hereinafter referred to as the “Ares ABL.”

Revenue Recognition

The Company records revenue when its products are shipped and title passes to customers. When sales of products are subject to certain customer acceptance terms, revenue from such sales is recognized once those terms have been met. The Company also provides its customers with limited rights of return for non-conforming shipments or product warranty claims.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014‑09”). ASU 2014-09 seeks to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. ASU 2014‑09 initially was effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. However, at its July 9, 2015 meeting, the FASB agreed to defer by one year the mandatory effective date of this standard, but will also provide the option to adopt it as of the original effective date. The Company is currently evaluating the impact of adopting ASU 2014‑09, but the standard is not expected to have a significant effect on its consolidated financial statements.

Product Warranties

The Company generally provides a five-year limited warranty covering defective materials and workmanship of its products. Such warranty may require the Company to repair, replace or reimburse the purchaser for the purchase price of the product. The estimated costs related to warranties are accrued at the time products are sold based on various factors, including the Company’s stated warranty policies and practices, the historical frequency of claims and the cost to repair or replace its products under warranty. The warranty provision is included in accrued expenses on the condensed consolidated balance sheet. Changes in the warranty provision for the nine months ended September 30, 2015 were as follows:

Warranty provision as of December 31, 2014	$	4,789,470
Additions to provision		1,422,333
Less warranty costs		(2,518,190	)
Warranty provision as of September 30, 2015	$	3,693,613

Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

• Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

• Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, accounts payable, amounts due under lines of credit and other short term borrowings, accrued expenses and the note payable are carried at amounts that approximate their fair value due to the short-term maturity of these instruments and/or variable, market driven interest rates.

The liabilities under derivative contracts, which represent warrants to purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), were initially recorded at fair value and subsequently reflected at their fair value at the end of each reporting period. The fair value of the warrant issued to The Home Depot, Inc. (the “THD Warrant”) in January 2011 is determined using the Monte Carlo valuation method and will be adjusted at each reporting date until the underlying shares have been earned for each year. Such adjustments will be recorded as a reduction in the related revenue (sales incentive) from The Home Depot, Inc. (“The Home Depot”). Once a portion of the THD Warrant vests it is recorded at its fair value at the end of each subsequent reporting period.

Reclassification

Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net loss or stockholders’ deficit.

XML

Note 9 - Earnings (Loss) Per Share - Computation of Basic and Diluted Net Loss Per Share of Common Stock (Details) - USD ($)	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Controlling Shareholders [Member] | Series J Preferred Stock [Member]
Deemed dividends related to the Series J Preferred Stock attributable to all shareholders	$ (23,178,283)	$ (34,077,591)
Controlling Shareholders [Member]
Net loss attributable to common stock	$ (11,841,266)	(43,394,934)
Deemed dividends due to the issuance of Pegasus Guaranty Warrants as compensation for guaranty provided by controlling shareholders		570,574
Undistributed net loss	$ (35,019,549)	$ (76,901,951)
Basic and diluted weighted average number of common shares outstanding (in shares)	296,699,120	220,629,709
Basic and diluted net loss per weighted average common share (in dollars per share)	$ (0.12)	$ (0.35)
Noncontrolling Shareholders [Member] | Series J Preferred Stock [Member]
Deemed dividends related to the Series J Preferred Stock attributable to all shareholders	$ (7,702,028)	$ (8,190,666)
Noncontrolling Shareholders [Member]
Net loss attributable to common stock	$ (3,934,793)	(10,430,121)
Deemed dividends due to the issuance of Pegasus Guaranty Warrants as compensation for guaranty provided by controlling shareholders		(570,574)
Undistributed net loss	$ (11,636,821)	$ (19,191,361)
Basic and diluted weighted average number of common shares outstanding (in shares)	98,591,636	53,029,108
Basic and diluted net loss per weighted average common share (in dollars per share)	$ (0.12)	$ (0.36)
Net loss attributable to common stock	$ (15,761,616)	$ (53,825,055)

XML

Note 2 - Summary of Significant Accounting Policies (Details Textual) - USD ($)		9 Months Ended
	Mar. 01, 2014	Sep. 30, 2015	Dec. 31, 2014
Medley Term Loan [Member] | Minimum [Member]
Restricted Cash and Cash Equivalents, Current		$ 3,000,000	$ 3,000,000
First Capital [Member]
Debt Instrument, Collateral Amount		$ 6,600,000	5,400,000
Medley Term Loan [Member]
Debt Instrument, Term	5 years	5 years
Restricted Cash and Cash Equivalents, Current		$ 3,000,000
Allowance for Doubtful Accounts Receivable		$ 483,000	$ 408,000
Products Warranty Period		5 years
Common Stock, Par or Stated Value Per Share		$ 0.001	$ 0.001

XML

Note 11 - Restructuring Expense (Tables)

9 Months Ended

Sep. 30, 2015

Notes Tables

Restructuring and Related Costs [Table Text Block]

	For the Nine Months Ended September 30,
	2015		2014
Broad based reduction of facilities and personnel (1)	$	297,770	$	2,558,072
Organization Optimization Initiative (2)		-		114,278
Total	$	297,770	$	2,672,350

Schedule of Restructuring Reserve by Type of Cost [Table Text Block]

	Workforce Reduction			Excess Facilities			Other Exit Costs			Total
Accrued liability as of December 31, 2014	$	959,240		$	353,269		$	138,840		$	1,451,349
Charges		297,770			-			-			297,770
Payments		(1,162,030	)		(82,247	)		(1,013	)		(1,245,290	)
Accrued liability as of September 30, 2015	$	94,980		$	271,022		$	137,827		$	503,829

XML

Note 10 - Related Party Transactions (Details Textual) - USD ($)	9 Months Ended
	Sep. 30, 2015	Sep. 11, 2015	Jan. 30, 2015
Holdings III [Member ] | Series J Redeemable Convertible Preferred Stock [Member]
Shares Issued, Price Per Share		$ 1,000	$ 1,000
Preferred Units, Issued		10,000	11,525
Proceeds from Other Equity	$ 21.50
Pegasus Capital [Member]
Ownership Percentage of Subsidiary Held in Parent	90.00%

XML

Note 2 - Summary of Significant Accounting Policies - Summary of Warranty Provision (Details)	9 Months Ended
	Sep. 30, 2015 USD ($)
Warranty provision	$ 4,789,470
Additions to provision	1,422,333
Less warranty costs	(2,518,190)
Warranty provision	$ 3,693,613

XML

Note 3 - Liquidity and Capital Resources (Details Textual) - USD ($)					9 Months Ended
	Sep. 30, 2015	Sep. 11, 2015	Jan. 30, 2015	Mar. 01, 2014	Sep. 30, 2015	Dec. 31, 2014	Sep. 30, 2014	Feb. 19, 2014	Dec. 31, 2013
Series J Preferred Stock [Member] | Holdings III [Member ] | Series J Redeemable Convertible Preferred Stock [Member]
Share Price	$ 1,000	$ 1,000	$ 1,000		$ 1,000
Convertible Preferred Stock, Shares Issued upon Conversion	1	1	1		1
Stock Issued During Period, Shares, New Issues	62	10,000	11,525
Proceeds from Issuance of Redeemable Preferred Stock					$ 21,600,000
Series K Preferred Stock [Member]
Share Price	$ 1,000				$ 1,000
Convertible Preferred Stock, Shares Issued upon Conversion	1				1
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right	735				735
Series J Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right	2,650	2,650	2,650		2,650
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.001	$ 0.001	$ 0.001		$ 0.001
Medley Term Loan [Member]
Debt Instrument, Term				5 years	5 years
Line of Credit Facility, Maximum Borrowing Capacity								$ 30,500,000
Class of Warrant or Right, Number of Securities Called by Warrants or Rights								5,000,000
First Capital [Member]
Debt Instrument, Term					3 years
Line of Credit Facility, Maximum Borrowing Capacity	$ 22,500,000				$ 22,500,000
Line of Credit, Current	7,000,000				7,000,000
Line of Credit Facility, Remaining Borrowing Capacity	$ 9,100,000				9,100,000
Geveran Case [Member]
Loss Contingency, Damages Sought, Value					$ 25,000,000
Class of Warrant or Right, Exercise Price of Warrants or Rights
Retained Earnings (Accumulated Deficit)	$ (816,104,632)				$ (816,104,632)	$ (800,328,573)
Stockholders' Equity Attributable to Parent	(524,036,297)				(524,036,297)	(487,056,183)
Cash and Cash Equivalents, at Carrying Value	574,111				574,111	1,609,297	$ 1,238,030		$ 11,195,412
Restricted Cash and Cash Equivalents, Current	$ 3,000,000				$ 3,000,000
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	278,735,799				278,735,799
Line of Credit, Current	$ 6,960,340				$ 6,960,340	$ 6,368,793
Preferred Stock, Redemption Amount	512,100,000				512,100,000
Debt, Long-term and Short-term, Combined Amount	$ 35,800,000				35,800,000
Loss Contingency, Damages Sought, Value					$ 25,000,000

XML

Note 1 - Description of Business and Basis of Presentation

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note 1. Description of Business and Basis of Presentation

Overview

Lighting Science Group Corporation (the “Company”) was incorporated in Delaware in 1988 and designs, develops, manufactures and markets general illumination products that use light emitting diodes (“LEDs”) as their exclusive light source. The Company’s product portfolio includes LED-based retrofit lamps (replacement bulbs) used in existing light fixtures as well as purpose built LED-based luminaires (light fixtures). The Company’s lamps and luminaires are used for many common indoor and outdoor residential, commercial, industrial and public infrastructure lighting applications. The Company assembles and manufactures products primarily through its contract manufacturers in Asia.

Basis of Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) in accordance with the disclosure requirements for the quarterly report on Form 10-Q and therefore do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to fairly state the results for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2014 is derived from the Company’s audited financial statements. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results of the Company that may be expected for the year ending December 31, 2015. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2014 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2015.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the accompanying condensed consolidated financial statements.

XML

Note 4 - Detail of Certain Balance Sheet Accounts (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Inventory Write Down	$ 4,700,000		$ 4,700,000		$ 7,900,000
Depreciation	454,000	$ 599,000	1,400,000	$ 2,600,000
Amortization of Intangible Assets	$ 21,000	$ 17,000	$ 62,000	$ 46,000

XML

Note 8 - Stockholders' Equity - Warrants Outstanding for Purchase of Common Stock (Details)	Sep. 30, 2015 $ / shares shares
Investors in Rights Offering [Member] | Series D Warrants [Member] | Minimum [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 2.95
Investors in Rights Offering [Member] | Series D Warrants [Member] | Maximum [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 2.96
Investors in Rights Offering [Member] | Series D Warrants [Member]
Number of Common Shares (in shares) | shares	1,192,048
The Home Depot [Member] | Purchasing Agreement [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.95
Number of Common Shares (in shares) | shares	8,456,432
Riverwood Warrants [Member] | RW LSG Management Holdings LLC [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights
Number of Common Shares (in shares) | shares	12,664,760
Riverwood Warrants [Member] | Certain Other Investors [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights
Number of Common Shares (in shares) | shares	5,427,751
September Two Thousand Twelve Warrants [Member] | Cleantech A [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.72
Number of Common Shares (in shares) | shares	3,406,041
September Two Thousand Twelve Warrants [Member] | Cleantech B [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.72
Number of Common Shares (in shares) | shares	593,959
September Two Thousand Twelve Warrants [Member] | Portman [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.72
Number of Common Shares (in shares) | shares	4,000,000
Private Placement Series H [Member] | Acquillian Investments LLC [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 1.18
Number of Common Shares (in shares) | shares	830,508
Pegasus Warrant [Member] | Pegasus Capital [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights
Number of Common Shares (in shares) | shares	10,000,000
Series J Warrants [Member] | Investors in Series J Follow on Offering [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.001
Number of Common Shares (in shares) | shares	212,164,300
Series J Warrants [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.001
Medley Warrant [Member] | Medley Capital Corporation [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.95
Number of Common Shares (in shares) | shares	10,000,000
Pegasus Guaranty Warrants [Member] | Pegasus Capital [Member]
Number of Common Shares (in shares) | shares	10,000,000
Class of Warrant or Right, Exercise Price of Warrants or Rights
Number of Common Shares (in shares) | shares	278,735,799

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Sep. 30, 2015	Dec. 31, 2014
Series H Preferred Stock [Member]
Current liabilities:
Series H Redeemable Convertible Preferred Stock, $.001 par value, authorized 135,000 shares, 113,609 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively	$ 227,220,149	$ 227,220,149
Series I Preferred Stock [Member]
Current liabilities:
Series H Redeemable Convertible Preferred Stock, $.001 par value, authorized 135,000 shares, 113,609 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively	124,736,627	124,736,627
Series J Preferred Stock [Member]
Current liabilities:
Series H Redeemable Convertible Preferred Stock, $.001 par value, authorized 135,000 shares, 113,609 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively	160,124,000	116,950,000
Cash and cash equivalents	574,111	1,609,297
Restricted cash	3,000,000	3,000,000
Accounts receivable, net	13,131,606	10,417,985
Inventories	27,360,094	22,726,162
Prepaid expenses	955,644	2,936,837
Other current assets	2,345,374	1,610,544
Total current assets	47,366,829	42,300,825
Property and equipment, net (includes accumulated depreciation of $11.7 million and $10.3 million as of September 30, 2015 and December 31, 2014, respectively)	1,257,851	2,650,115
Intangible assets, net	2,805,375	2,572,479
Pegasus Commitment	286,400	720,000
Debt issuance costs, less current portion	2,148,826	3,230,446
Other long-term assets	132,598	118,467
Total assets	53,997,879	51,592,332
FCC ABL, revolving line of credit	6,960,340	6,368,793
Current portion of long-term debt	52,755	58,574
Accounts payable	15,340,305	19,364,552
Provision for losses on non-cancelable purchase commitments	31,710	540,227
Accrued expenses	7,993,916	9,924,316
Total current liabilities	30,379,026	36,256,462
Medley Term Loan	$ 28,871,320	27,813,061
Long-term debt, less current portion		35,272
Liabilities under derivative contracts	$ 6,703,054	5,636,944
Total other liabilities	35,574,374	33,485,277
Total liabilities	65,953,400	69,741,739
Series H Redeemable Convertible Preferred Stock, $.001 par value, authorized 135,000 shares, 113,609 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively	$ 512,080,776	$ 468,906,776
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.001 par value, authorized 25,000,000 shares, 113,609 shares of Series H, 62,365 shares of Series I and 80,62 shares of Series J issued and outstanding as of September 30, 2015 and 113,609 shares of Series H, 62,365 shares of Series I and 58,475 shares of Series J issued and outstanding as of December 31, 2014
Common stock, $.001 par value, authorized 975,000,000 shares, 214,326,722 and 212,452,636 shares issued as of September 30, 2015 and December 31, 2014, respectively	$ 214,327	$ 212,453
Additional paid-in capital	298,612,012	320,175,440
Accumulated deficit	(816,104,632)	(800,328,573)
Accumulated other comprehensive loss	(3,000,504)	(3,358,003)
Treasury stock, 2,505,000 shares as of September 30, 2015 and December 31, 2014 , at cost	(3,757,500)	(3,757,500)
Total stockholders’ deficit	(524,036,297)	(487,056,183)
Total liabilities and stockholders’ deficit	$ 53,997,879	$ 51,592,332

XML

Note 11 - Restructuring Expense (Details Textual)	Sep. 30, 2015 USD ($)
Facility Closing [Member]
Restructuring and Related Cost, Expected Cost	$ 200,000
Restructuring and Related Cost, Expected Cost Remaining	$ 504,000

XML

Condensed Consolidated Statement of Stockholders' Deficit (Unaudited) - 9 months ended Sep. 30, 2015 - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Treasury Stock [Member]	Total
Balance (in shares) at Dec. 31, 2014	212,452,636
Balance at Dec. 31, 2014	$ 212,453	$ 320,175,440	$ (800,328,573)	$ (3,358,003)	$ (3,757,500)	$ (487,056,183)
Issuance of restricted stock for directors' compensation (in shares)	1,934,515
Issuance of restricted stock for directors' compensation	$ 1,935	255,907				257,842
Stock based compensation expense (in shares)	(66,000)
Stock based compensation expense	$ (66)	915,921				915,855
Stock issued under equity compensation plans (in shares)	5,571
Stock issued under equity compensation plans	$ 5	842				847
Issuance of Series J Warrants		8,144,213				8,144,213
Deemed dividends on Series J Redeemable Convertible Preferred Stock		$ (30,880,311)				(30,880,311)
Net loss			$ (15,776,059)			(15,776,059)
Foreign currency translation adjustment				$ 357,499		357,499
Balance (in shares) at Sep. 30, 2015	214,326,722
Balance at Sep. 30, 2015	$ 214,327	$ 298,612,012	$ (816,104,632)	$ (3,000,504)	$ (3,757,500)	$ (524,036,297)

XML

Note 6 - Lines of Credit and Note Payable (Details Textual) - USD ($)			3 Months Ended		9 Months Ended
	Sep. 11, 2015	Feb. 19, 2014	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014	Apr. 25, 2014
Medley Capital Corporation [Member] | Medley Term Loan [Member] | Commitment Fees [Member] | Medley Warrant [Member]
Accretion of Discount			$ 195,000	$ 195,000	$ 584,000	$ 474,000
Debt Instrument, Increase, Accrued Interest			$ 160,000	$ 157,000	$ 474,000	382,000
Medley Capital Corporation [Member] | Medley Term Loan [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate		12.00%
Medley Capital Corporation [Member] | Medley Term Loan [Member]
Debt Instrument, Interest Rate, Effective Percentage			12.33%		12.33%
Notes Payable		$ 30,500,000
Restricted Cash and Cash Equivalents, Current		3,000,000
First Capital [Member] | Accounts Receivable [Member]
Debt Instrument, Collateral Amount			$ 6,600,000		$ 6,600,000
First Capital [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	5.50%				5.50%
First Capital [Member]
Line of Credit Facility, Maximum Borrowing Capacity								$ 22,500,000
Line of Credit Facility, Remaining Borrowing Capacity			9,100,000		$ 9,100,000
Debt Instrument, Collateral Amount			6,600,000		6,600,000		$ 5,400,000
Line of Credit Facility, Eligible Collateral Inventory			$ 10		$ 10
Debt Instrument, Interest Rate, Effective Percentage			5.70%		5.70%
Change in Interest Margin Payable	1.50%
Medley Term Loan [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 30,500,000
Amendment to Medley Term Loan [Member]
Term Loan Covenants, Cash Proceeds from Offering to be Used in EBITDA Calcuation	$ 10,000,000
Accretion of Discount					$ 584,304	473,935
Restricted Cash and Cash Equivalents, Current			$ 3,000,000		3,000,000
Debt Instrument, Increase, Accrued Interest					$ (473,955)	$ (381,611)

XML

Note 2 - Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2015

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

Warranty provision as of December 31, 2014	$	4,789,470
Additions to provision		1,422,333
Less warranty costs		(2,518,190	)
Warranty provision as of September 30, 2015	$	3,693,613

XML

Note 6 - Lines of Credit and Note Payable - Lines of Credit and Note Payable (Details) - USD ($)	Sep. 30, 2015	Dec. 31, 2014
First Capital [Member]
FCC ABL, revolving line of credit	$ 6,960,340	$ 6,368,793
Medley Term Loan [Member]
Medley Term Loan	28,871,320	27,813,061
FCC ABL, revolving line of credit	6,960,340	6,368,793
Medley Term Loan	28,871,320	27,813,061
	$ 35,831,660	$ 34,181,854

XML

Note 6 - Lines of Credit and Note Payable (Tables)

9 Months Ended

Sep. 30, 2015

Notes Tables

Schedule of Debt [Table Text Block]

Facility	September 30, 2015		December 31, 2014
FCC ABL, revolving line of credit	$	6,960,340	$	6,368,793
Medley Term Loan		28,871,320		27,813,061
	$	35,831,660	$	34,181,854

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Series J Preferred Stock [Member]
Cash flows from financing activities:
Proceeds from issuance of Series J Redeemable Convertible Preferred Securities	$ 21,538,000	$ 25,475,000
Non-cash investing and financing activities:
Deemed dividends	(30,880,311)	$ (42,268,257)
Receivable for issuance of Series J Redeemable Convertible Preferred Stock	$ 49,000
Series J Warrants [Member]
Non-cash investing and financing activities:
Reclass of Series J Warrants from liabilities to equity		$ 37,646,300
Issuance of Series J Warrants	$ 8,144,213	3,849,742
THD Warrant [Member]
Non-cash investing and financing activities:
Reclass of THD Warrant from equity to liabilities		(74,576)
Pegasus Guaranty Warrants [Member]
Non-cash investing and financing activities:
Deemed dividends		(570,574)
Fair value of Pegasus Guaranty included in debt issuance costs		(2,766,000)
Net loss	$ (15,776,059)	(53,825,055)
Depreciation and amortization	$ 1,468,860	2,692,202
Impairment of plant and equipment		41,555
Allocated Share-based Compensation Expense	$ 257,842	412,451
Stock based compensation expense	$ 915,855	1,901,285
Non-cash sales incentive		99,801
Allowance for doubtful accounts receivable	$ 83,105	25,672
Write-down of inventory	853,160	$ 1,491,365
Provision for losses on non-cancelable purchase commitments	115,926
Increase in fair value of derivative contracts	1,499,710	$ 18,682,848
Amortization of debt issuance costs	1,131,106	1,299,931
Medley discount accretion	584,304	473,935
Interest accrued on Medley Term Loan	473,955	381,611
Loss on disposal of assets	30,793	639,490
Accounts receivable	(2,718,024)	(5,520,513)
Inventories	(6,102,438)	(5,434,495)
Prepaid expenses	1,981,498	(1,287,842)
Other current and long-term assets	(459,698)	139,753
Accounts payable	(4,003,021)	1,056,734
Accrued expenses and other liabilities	(1,892,901)	1,790,940
Net cash used in operating activities	(21,556,027)	(34,938,332)
Purchases of property and equipment	(15,042)	(420,116)
Capitalized patents	(325,739)	(687,079)
Proceeds from sale of property and equipment	500	383,159
Net cash used in investing activities	(340,281)	(724,036)
Net proceeds (payments) from draws on lines of credit and other short-term borrowings	$ 591,547	(28,056,176)
Proceeds from long-term borrowings		29,775,000
Payment of short and long-term debt	$ (41,091)	(4,050)
Debt issuance costs	$ (338,749)	(3,210,206)
Decrease in restricted cash related to line of credit		2,000,000
Proceeds from issuance of common stock under equity compensation plans	$ 847	5,462
Fees incurred on issuance of preferred stock	(1,149,098)	(437,776)
Net cash provided by financing activities	20,601,456	25,547,254
Effect of exchange rate changes on cash	259,666	157,732
Net decrease in cash	(1,035,186)	(9,957,382)
Cash and cash equivalents balance at beginning of period	1,609,297	11,195,412
Cash and cash equivalents balance at end of period	574,111	1,238,030
Interest paid during the period	$ 3,824,787	$ 3,753,932

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - USD ($)	Sep. 30, 2015	Dec. 31, 2014
Series H Preferred Stock [Member]
Redeemable Convertible Preferred Stock, Par Value (in dollars per share)	$ 0.001	$ 0.001
Redeemable Convertible Preferred Stock, Authorized Shares (in shares)	135,000	135,000
Redeemable Convertible Preferred Stock, Shares Issued (in shares)	113,609	113,609
Redeemable Convertible Preferred Stock, Shares Outstanding (in shares)	113,609	113,609
Series I Preferred Stock [Member]
Redeemable Convertible Preferred Stock, Par Value (in dollars per share)	$ 0.001	$ 0.001
Redeemable Convertible Preferred Stock, Authorized Shares (in shares)	90,000	90,000
Redeemable Convertible Preferred Stock, Shares Issued (in shares)	62,365	62,365
Redeemable Convertible Preferred Stock, Shares Outstanding (in shares)	62,365	62,365
Series J Preferred Stock [Member]
Redeemable Convertible Preferred Stock, Par Value (in dollars per share)	$ 0.001	$ 0.001
Redeemable Convertible Preferred Stock, Authorized Shares (in shares)	85,100	85,100
Redeemable Convertible Preferred Stock, Shares Issued (in shares)	80,062	58,475
Redeemable Convertible Preferred Stock, Shares Outstanding (in shares)	80,062	58,475
Accumulated depreciation	$ 11,700,000	$ 10,300,000
Common Stock, Par Value (in dollars per share)	$ 0.001	$ 0.001
Common Stock, Shares Authorized (in shares)	975,000,000	975,000,000
Common Stock, Shares Issued (in shares)	214,326,722	212,452,636
Treasury Stock, Shares (in shares)	2,505,000	2,505,000

XML

Note 10 - Related Party Transactions

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

Note 10: Related Party Transactions

Pegasus Capital is an affiliate of Pegasus IV and LSGC Holdings, which are the Company’s largest stockholders and beneficially owned approximately 90.0% of the Common Stock as of September 30, 2015.

On September 11, 2015 and January 30, 2015, the Company issued an additional 10,000 and 11,525 units of Series J Securities, at a purchase price of $1,000 per Series J Security for aggregate gross proceeds of $21.5 million. The Series J Securities were issued pursuant to subscription agreements between the Company and Holdings III, an affiliate of Pegasus Capital.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2015	Nov. 10, 2015
Entity Registrant Name	LIGHTING SCIENCE GROUP CORP
Entity Central Index Key	0000866970
Trading Symbol	lscg
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		211,756,727
Document Type	10-Q
Document Period End Date	Sep. 30, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Note 11 - Restructuring Expense

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Restructuring and Related Activities Disclosure [Text Block]

Note 11. Restructuring Expense

The following table summarizes the Company’s restructuring expense and related charges for the periods indicated:

	For the Nine Months Ended September 30,
	2015		2014
Broad based reduction of facilities and personnel (1)	$	297,770	$	2,558,072
Organization Optimization Initiative (2)		-		114,278
Total	$	297,770	$	2,672,350

(1) These charges relate to a significant cost reduction plan initiated during the fourth quarter of 2013 that includes outsourcing of a majority of the Company’s manufacturing to its contract manufacturers in Asia, related workforce reductions in Satellite Beach, Florida and cost reductions in its foreign subsidiaries. The Company estimates it will incur $200,000 in additional expenses throughout this cost reduction plan, primarily related to additional headcount reductions. These additional costs are expected to be incurred during 2015.

(2) In September 2011, the Company initiated a restructuring plan designed to further increase efficiencies across the organization and lower the overall cost structure. In 2012, the Company extended the restructuring plan to further increase efficiencies across the organization and lower its overall cost structure. The plan included a significant reduction in full time headcount and the closing of the Company’s offices in the United Kingdom and Australia. For the nine months ended September 30, 2014, these expenses related to the final liquidation of the Australian entity .

As of September 30, 2015, the accrued liability associated with the restructuring and other related charges consisted of the following:

	Workforce Reduction			Excess Facilities			Other Exit Costs			Total
Accrued liability as of December 31, 2014	$	959,240		$	353,269		$	138,840		$	1,451,349
Charges		297,770			-			-			297,770
Payments		(1,162,030	)		(82,247	)		(1,013	)		(1,245,290	)
Accrued liability as of September 30, 2015	$	94,980		$	271,022		$	137,827		$	503,829

The remaining accrual of $504

,000 as of September 30, 2015 is expected to be paid during the year ending December 31, 2016.

The restructuring and other related charges are included in the line item restructuring expense in the condensed consolidated statement of operations and comprehensive loss.

XML

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Parent [Member]
Basic and diluted net loss per weighted average common share (in dollars per share)	$ (0.04)	$ (0.04)	$ (0.12)	$ (0.35)
Basic and diluted weighted average number of common shares outstanding (in shares)	303,817,578	255,194,735	296,699,120	220,629,709
Noncontrolling Interest [Member]
Basic and diluted net loss per weighted average common share (in dollars per share)	$ (0.04)	$ (0.04)	$ (0.12)	$ (0.36)
Basic and diluted weighted average number of common shares outstanding (in shares)	98,997,606	63,038,781	98,591,636	53,029,108
Revenue	$ 19,587,399	$ 23,089,356	$ 62,229,307	$ 68,843,061
Cost of goods sold (exclusive of depreciation shown below)	14,363,734	20,166,431	50,658,859	62,705,900
Gross profit	5,223,665	2,922,925	11,570,448	6,137,161
Selling, distribution and administrative (includes related party expenses of $0 and $11,000 for the three months ended September 30, 2015 and 2014; $0 and $880,000 for the nine months ended September 30, 2015 and 2014, respectively	3,902,694	7,888,383	15,894,335	26,586,501
Research and development	$ 598,988	1,099,010	2,833,298	4,177,616
Restructuring expense		2,466,505	297,770	2,672,350
Depreciation and amortization	$ 474,717	615,879	1,468,860	2,692,202
Total operating expenses	4,976,399	12,069,777	20,494,263	36,128,669
Income (loss) from operations	247,266	(9,146,852)	(8,923,815)	(29,991,508)
Interest income	2	2,839	1,165	3,475
Interest expense	(1,583,501)	(1,494,926)	(4,713,332)	(4,779,245)
Related party interest expense	(138,300)	(138,300)	(338,067)	(338,067)
Decrease in fair value of liabilities under derivative contracts	2,005,783	8,813,540	(1,499,710)	(18,682,848)
Other (expense) income, net	(247,463)	(138,877)	(287,857)	(36,862)
Total other income	36,521	7,044,276	(6,837,801)	(23,833,547)
Income (loss) before income tax expense	283,787	$ (2,102,576)	(15,761,616)	$ (53,825,055)
Income tax expense	14,443		14,443
Net income (loss)	269,344	$ (2,102,576)	(15,776,059)	$ (53,825,055)
Foreign currency translation adjustment	241,736	60,574	357,499	211,279
Comprehensive income (loss)	$ 511,080	$ (2,042,002)	$ (15,418,560)	$ (53,613,776)

XML

Note 5 - Debt Issuance Costs

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Debt Issuance Costs [Text Block]

Note 5. Debt Issuance Costs

The Company capitalizes its costs related to the issuance of long-term debt and amortizes these costs using the effective interest rate method over the life of the loan. Amortization of debt issuance costs and the accelerated write-off of debt issuance costs in connection with refinancing activities are recorded as a component of interest expense. As of September 30, 2015, the current portion of the debt issuance costs was $1.6 million and was included in other current assets. In connection with the Ares ABL and the Medley Term Loan, $6.0 million of debt issuance costs were capitalized, including $2.8 million related to the fair value of the guaranty of the Company’s obligations under the Medley Loan Agreement in favor of Medley (the “Pegasus Guaranty”) provided by Pegasus Capital Partners IV, L.P. and Pegasus Capital Partners V, L.P. (collectively, the “Pegasus Guarantors”). The Company amortized $398,000 and $312,000 of debt issuance costs for the three months ended September 30, 2015 and 2014, respectively. The Company amortized $1.1 million and $1.3 million of debt issuance costs for the nine months ended September 30, 2015 and 2014, respectively

.

XML

Note 4 - Detail of Certain Balance Sheet Accounts

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Supplemental Balance Sheet Disclosures [Text Block]

Note 4. Detail of Certain Balance Sheet Accounts

Inventories

Inventories consisted primarily of finished goods as of September 30, 2015 and December 31, 2014. As of September 30, 2015 and December 31, 2014, inventories were stated net of inventory write downs of $4.7 million and $7.9 million, respectively. The Company considered a number of factors in estimating the required inventory write downs, including (i) the focus of the business on the next generation of the Company’s products, which utilize lower cost technologies, (ii) the strategic focus on core products to meet the demands of key customers and (iii) the expected demand for the Company’s current generation of products, which is approaching the end of its lifecycle upon the introduction of the next generation of products.

Property and Equipment, Net

Depreciation related to property and equipment was $454

,000 and $599,000 for the three months ended September 30, 2015 and 2014, respectively. Depreciation related to property and equipment was $1.4 million and $2.6 million for the nine months ended September 30, 2015 and 2014, respectively.

Intangible Assets

Intangible assets that have finite lives are amortized over their useful lives. The Company’s intangible assets as of September 30, 2015 and December 31, 2014 are detailed below:

	Cost, Less Impairment Charges		Accumulated Amortization			Net Book Value		Estimated Remaining Useful Life (years)
September 30, 2015:
Technology and intellectual property	$	3,091,026	$	(285,651	)	$	2,805,375	0.9	to	20.0
December 31, 2014:
Technology and intellectual property	$	2,796,580	$	(224,101	)	$	2,572,479	2.7	to	20.0

Total intangible asset amortization expense was $21,000 and $17,000 for the three months ended September 30, 2015 and 2014, respectively. Total intangible asset amortization expense was $62

,000 and $46,000 for the nine months ended September 30, 2015 and 2014, respectively.

XML

Note 4 - Detail of Certain Balance Sheet Accounts (Tables)

9 Months Ended

Sep. 30, 2015

Notes Tables

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	Cost, Less Impairment Charges		Accumulated Amortization			Net Book Value		Estimated Remaining Useful Life (years)
September 30, 2015:
Technology and intellectual property	$	3,091,026	$	(285,651	)	$	2,805,375	0.9	to	20.0
December 31, 2014:
Technology and intellectual property	$	2,796,580	$	(224,101	)	$	2,572,479	2.7	to	20.0

XML

Note 12 - Concentrations of Credit Risk

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

Note 12. Concentrations of Credit Risk

For the three months ended September 30, 2015 and 2014, revenue derived from sales to The Home Depot represented 89% and 82%, respectively, of the Company’s total revenue. For the nine months ended September 30, 2015 and 2014, revenue derived from sales to The Home Depot represented 88% and 78%, respectively, of total revenue.

As of September 30, 2015 and December 31, 2014, The Home Depot accounts receivable balance represented 78% and 77%, respectively, of the Company’s total accounts receivable, net of allowances.

XML

Note 8 - Stockholders' Equity

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

Note 8. Stockholders’ Equity

For the three months ended September 30, 2015 and 2014, the Company recorded expense of $128

,000 and $221,000, respectively, related to restricted stock awards to the Company’s directors. For the nine months ended September 30, 2015 and 2014, the Company recorded expense of $258,000 and $412,000, respectively, related to restricted stock awards to the Company’s directors.

On June 12, 2014, the Board approved the formation of a Scientific Advisory Board (the “SAB”) and issued restricted stock awards to each of the five members of the SAB as part of their compensation package. For the three and nine months ended September 30, 2015, the Company recorded expense of $0 and $37,000, respectively, related to restricted stock awards to the Company’s SAB. For the three and nine months ended September 30, 2014, the Company recorded expense of $26,000 and $31,000, respectively, related to restricted stock awards to the Company’s SAB.

Warrants for the Purchase of Common Stock

As of September 30, 2015, the following warrants for the purchase of Common Stock were outstanding:

Warrant Holder	Reason for Issuance	Number of Common Shares		Exercise Price		Expiration Date
Investors in rights offering	Series D Warrants		1,192,048	$	2.65 to $2.66	March 3, 2022 through April 19, 2022
The Home Depot	Purchasing agreement		8,456,432	$	0.95	December 31, 2015 through 2018
RW  LSG Management Holdings LLC	Riverwood Warrants		12,664,760		Variable	May 25, 2022
Certain other investors	Riverwood Warrants		5,427,751		Variable	May 25, 2022
Cleantech Europe II (A) LP	September 2012 Warrants		3,406,041	$	0.72	September 25, 2022
Cleantech Europe II (B) LP	September 2012 Warrants		593,959	$	0.72	September 25, 2022
Portman Limited	September 2012 Warrants		4,000,000	$	0.72	September 25, 2022
Aquillian Investments LLC	Private Placement Series H		830,508	$	1.18	September 25, 2017
Pegasus	Pegasus Warrant		10,000,000		Variable	May 25, 2022
Investors in Series J Follow-On Offering	Series J Warrants		212,164,300	$	0.001	January 3, 2019 through January 30, 2020
Medley	Medley Warrants		10,000,000	$	0.95	February 19, 2024
Pegasus	Pegasus Guaranty Warrants		10,000,000	$	0.50	February 19, 2024
			278,735,799

XML

Note 6 - Lines of Credit and Note Payable

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Debt Disclosure [Text Block]

Note 6. Lines of Credit and Note Payable

Facility	September 30, 2015		December 31, 2014
FCC ABL, revolving line of credit	$	6,960,340	$	6,368,793
Medley Term Loan		28,871,320		27,813,061
	$	35,831,660	$	34,181,854

Ares ABL

On April 25, 2014, the Company, entered into the Ares ABL, which provides the Company with a maximum borrowing capacity of $22.5 million, which capacity is based on a formula of eligible accounts receivable and inventory.

As of September 30, 2015, the Company had additional borrowing capacity of $9.1 million. As of September 30 2015, eligible collateral included $6.6 million of accounts receivable and $10.0 million of inventory. Borrowings under the Ares ABL bear interest at a floating rate equal to one

-month LIBOR plus 5.5% per annum

. As of September 30, 2015, the interest rate on the Ares ABL was 5.7%.

On September 11, 2015, the Company entered into an amendment to the Ares ABL, which among other things (i) increased the interest margin payable under the Ares ABL by 150 basis points, such that the interest accrues on the outstanding borrowings at a rate equal to LIBOR plus 5.5%, (ii) provided for a mandatory repayment in full of the obligations under the Ares ABL if the Company redeems the Series K Preferred Stock, (iii) allows the Company to enter into the Appeal Bond and certain related agreements without further consent or approval from Ares, (iv) provides that the Company must notify Ares of entry of the August 28

th

Order within two business days of the entry thereof, and (v) adds certain events of default relating to the Geveran litigation

.

Medley

Term Loan

On February 19, 2014, the Company entered into the Medley Term Loan, which provided the Company with a $30.5 million term loan facility. The Medley Term Loan bears interest at a floating rate equal to three-month LIBOR plus 12% per annum, and as of September 30, 2015, the interest rate on the Medley Term Loan was 12.33%. Additionally, $3.0 million of the Medley Term Loan was funded directly into a deposit account to which Medley has exclusive access, to further secure the loan. The outstanding principal balance and all accrued and unpaid interest on the Medley Term Loan are due and payable on February 19, 2019. The Company recognized $195,000 of interest expense for the accretion of the discounts to the balance of the Medley Term Loan related to commitment fees and the Medley Warrants for both the three months ended September 30, 2015 and 2014, and $160,000 and $157,000 of accrued interest for the three months ended September 30, 2015 and 2014, respectively. The Company recognized $584,000 of interest expense for the accretion of the discounts to the balance of the Medley Term Loan related to commitment fees and the Medley Warrants and $474,000 of accrued interest for the nine months ended September 30, 2015, and $474,000 of interest expense for the accretion of the discounts to the balance of the Medley Term Loan related to the commitment fees and the Medley Warrants and $382,000 of accrued interest for the period from February 19, 2014 (date of issuance) to September 30, 2014.

On September 11, 2015, the Company entered into an amendment to the

Medley Term Loan, which among other things, (i) amends the minimum EBITDA covenant levels with respect to each of the twelve-month period ended September 30, 2015, the twelve-month period ending December 31, 2015, the twelve-month period ending March 31, 2016 and the twelve-month period ending June 30, 2016 (collectively, the “ Specified Covenant Periods ”) to provide that a portion of the cash proceeds from the sale of Series J Securities on September 11, 2015 will be included in the calculation of EBITDA for such periods, (ii) amends the definition of “Fixed Charge Coverage Ratio” in the Medley Term Loan Agreement to provide that $10.0 million of the cash proceeds from the September 11, 2015 offering will be included in EBITDA for purposes of calculating the “Fixed Charge Coverage Ratio” for each of the Specified Covenant Periods, (iii) allows the Company to enter into the Appeal Bond and certain related agreements without further consent or approval from Medley and (iv) adds certain events of default relating to the Geveran litigation

.

XML

Note 7 - Fair Value Measurements

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 7. Fair Value Measurements

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2015, according to the valuation techniques the Company used to determine their fair values:

	Fair Value Measurement as of September 30, 2015
	Quoted Price in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3
Assets (Recurring):
Pegasus Commitment	$	-	$	-	$	286,400
Liabilities (Recurring):
Riverwood Warrants	$	-	$	-	$	2,817,004
September 2012 Warrants		-		-		286,400
Pegasus Warrant		-		-		1,557,000
THD Warrant		-		-		120,082
Medley Warrants		-		-		896,354
Pegasus Guaranty Warrants		-		-		1,026,214
	$	-	$	-	$	6,703,054

The following table is a reconciliation of the beginning and ending balances for assets and liabilities that were accounted for at fair value on a recurring basis using Level 3 inputs

, as defined above

, for the nine months ended September 30, 2015:

	Balance December 31, 2014			Realized and unrealized gains (losses) included in net loss			Purchases, sales, issuances and settlements		Transfers in or out of Level 3		Balance September 30, 2015
Pegasus Commitment	$	720,000		$	(433,600	)	$	-	$	-	$	286,400
Riverwood Warrants		(2,352,027	)		(464,977	)		-		-		(2,817,004	)
September 2012 Warrants		(720,000	)		433,600			-		-		(286,400	)
Pegasus Warrant		(1,300,000	)		(257,000	)		-		-		(1,557,000	)
THD Warrant		(43,928	)		(76,154	)		-		-		(120,082	)
Medley Warrants		(577,065	)		(319,289	)		-		-		(896,354	)
Pegasus Guaranty Warrants		(643,924	)		(382,290	)		-		-		(1,026,214	)
Total	$	(4,916,944	)	$	(1,499,710	)	$	-	$	-	$	(6,416,654	)

The following table is a reconciliation of the beginning and ending balances for assets and liabilities that were accounted for at fair value on a recurring basis using Level 3 inputs

, as defined above

, for the nine months ended September 30, 2014:

	Balance December 31, 2013			Realized and unrealized gains (losses) included in net loss			Purchases, sales, issuances and settlements			Transfers in or out of Level 3			Balance September 30, 2014
Pegasus Commitment	$	1,407,335		$	(367,335	)	$	-		$	-		$	1,040,000
Riverwood Warrants		(5,002,664	)		1,746,011			-			-			(3,256,653	)
September 2012 Warrants		(1,407,335	)		367,335			-			-			(1,040,000	)
Pegasus Warrant		(2,765,047	)		965,047			-			-			(1,800,000	)
THD Warrant		-			(39,867	)		-			(74,576	)		(114,443	)
Series J Warrants		-			(25,140,561	)		(12,505,739	)		37,646,300			-
Medley Warrants		-			1,847,049			(3,170,361	)		-			(1,323,312	)
Pegasus Guaranty Warrants		-			1,901,193			(3,336,574	)		-			(1,435,381	)
Total	$	(7,767,711	)	$	(18,721,128	)	$	(19,012,674	)	$	37,571,724		$	(7,929,789	)

XML

Note 9 - Earnings (Loss) Per Share

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Earnings Per Share [Text Block]

Note 9: Earnings (Loss) Per Share

In 2012, the Company determined that two classes of Common Stock had been established for financial reporting purposes only, with Common Stock attributable to controlling stockholders representing shares beneficially owned and controlled by Pegasus and the Common Stock attributable to noncontrolling stockholders representing the minority interest stockholders. For the three and nine months ended September 30, 2015 and 2014, the Company computed net loss per share of noncontrolling stockholders and controlling stockholders of Common Stock using the two-class method. Net loss from operations is initially allocated based on the underlying common shares held by controlling and noncontrolling stockholders. The allocation of the net losses attributable to the Common Stock attributable to controlling stockholders is then reduced by the amount of the deemed dividend related to the warrants issued to the Pegasus Guarantors, while the allocation of net losses attributable to the Common Stock attributable to noncontrolling stockholders is increased by the amount of the deemed dividend related to the warrants issued to the Pegasus Guarantors.

The following table sets forth the computation of basic and diluted net loss per share of Common Stock:

	For the Three Months Ended September 30,
	2015						2014
	Controlling Stockholders			Noncontrolling Stockholders			Controlling Stockholders			Noncontrolling Stockholders
Basic and diluted net income (loss) per share:
Net loss attributable to common stock	$	203,149		$	66,195		$	(1,686,077	)	$	(416,499	)
Deemed dividends related to the Series J Preferred Stock attributable to all shareholders		(11,742,251	)		(3,826,160	)		(9,571,504	)		(2,364,374	)
Undistributed net loss	$	(11,539,102	)	$	(3,759,965	)	$	(11,257,581	)	$	(2,780,873	)
Basic and diluted weighted average number of common shares outstanding		303,817,578			98,997,606			255,194,735			63,038,781
Basic and diluted net loss per common share	$	(0.04	)	$	(0.04	)	$	(0.04	)	$	(0.04	)

	For the Nine Months Ended September 30,
	2015						2014
	Controlling Stockholders			Noncontrolling Stockholders			Controlling Stockholders			Noncontrolling Stockholders
Basic and diluted net income per share:
Net loss attributable to common stock	$	(11,841,266	)	$	(3,934,793	)	$	(43,394,934	)	$	(10,430,121	)
Deemed dividends due to the issuance of Pegasus Guaranty Warrants as compensation for guaranty provided by controlling shareholders		-			-			570,574			(570,574	)
Deemed dividends related to the Series J Preferred Stock attributable to all shareholders		(23,178,283	)		(7,702,028	)		(34,077,591	)		(8,190,666	)
Undistributed net loss	$	(35,019,549	)	$	(11,636,821	)	$	(76,901,951	)	$	(19,191,361	)
Basic and diluted weighted average number of common shares outstanding		296,699,120			98,591,636			220,629,709			53,029,108
Basic and diluted net loss per common share	$	(0.12	)	$	(0.12	)	$	(0.35	)	$	(0.36	)

Basic earnings per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the applicable period. The Series J Warrants have an exercise price of $0.001 per share of Common Stock, and are included in the weighted average number of shares of Common Stock outstanding as there are no conditions that must be satisfied before such warrant may be exercised into the shares of Common Stock underlying such warrants. Diluted earnings per share is computed in the same manner as basic earnings per share except the number of shares is increased to assume exercise of potentially dilutive stock options, unvested restricted stock and contingently issuable shares using the treasury stock method and convertible preferred shares using the if-converted method, unless the effect of such increases would be anti-dilutive. The Company had 213.3 million and 177.1 million common stock equivalents for the three months ended September 30

, 2015 and 2014, respectively, and 209.8 million and 190.4 million common stock equivalents for the nine months ended September 30

, 2015 and 2014, respectively, which were not included in the diluted net loss per common share as the common stock equivalents were anti-dilutive, as a result of the Company being in a net loss position.

XML

Note 5 - Debt Issuance Costs (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Other Current Assets [Member]
Deferred Finance Costs, Current, Net	$ 1,600,000		$ 1,600,000
First Capital and Medley [Member]
Debt Issuance Cost			6,000,000
Pegasus Guaranty [Member]
Debt Issuance Cost			2,800,000
Amortization of Financing Costs	$ 398,000	$ 312,000	$ 1,131,106	$ 1,299,931

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2015

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) in accordance with the disclosure requirements for the quarterly report on Form 10-Q and therefore do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to fairly state the results for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2014 is derived from the Company’s audited financial statements. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results of the Company that may be expected for the year ending December 31, 2015. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2014 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2015.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the accompanying condensed consolidated financial statements.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expense during the reporting periods. The Company’s actual results could differ from these estimates.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

As of September 30, 2015 and December 31, 2014, as required by the Company’s five-year term loan (as amended from time to time, the “Medley Term Loan”)

with Medley Capital Corporation (“Medley”), the Company maintained a minimum restricted cash balance of $3.0 million to collateralize the

Medley Term Loan. Changes in the restricted cash balance are reflected as a financing activity in the consolidated statement of cash flows.

Trade and Other Accounts Receivable, Policy [Policy Text Block]

Accounts Receivable

The Company records accounts receivable at the invoiced amount when its products are shipped to customers or when specific milestone billing requirements are completed. The Company’s accounts receivable balance is recorded net of allowances for amounts not expected to be collected from customers. This allowance for doubtful accounts is the Company’s best estimate of probable credit losses in the Company’s existing accounts receivable. Estimates used in determining the allowance for doubtful accounts are based on historical collection experience, age of receivables and known collectability issues. The Company writes off accounts receivable when it becomes apparent, based on age or customer circumstances, that such amounts will not be collected. The Company reviews its allowance for doubtful accounts on a quarterly basis. Recovery of bad debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected. Generally, the Company does not require collateral for its accounts receivable and does not regularly charge interest on past due amounts. As of September 30, 2015 and December 31, 2014, the Company’s accounts receivable were reflected net of an allowance for doubtful accounts of $483

,000 and $408,000, respectively.

As of September 30, 2015 and December 31, 2014, $6.6 million and $5.4 million, respectively, of eligible accounts receivable were pledged as collateral for the three-year asset based revolving credit facility (as amended from time to time, the “FCC ABL”) entered into on April 25, 2014 with FCC, LLC d/b/a First Capital (“First Capital”). First Capital sold the FCC ABL to ACF Finco I LP (“Ares”) in May 2015, and the FCC ABL is hereinafter referred to as the “Ares ABL.”

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

The Company records revenue when its products are shipped and title passes to customers. When sales of products are subject to certain customer acceptance terms, revenue from such sales is recognized once those terms have been met. The Company also provides its customers with limited rights of return for non-conforming shipments or product warranty claims.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 seeks to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. ASU 2014-09 initially was effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. However, at its July 9, 2015 meeting, the FASB agreed to defer by one year the mandatory effective date of this standard, but will also provide the option to adopt it as of the original effective date. The Company is currently evaluating the impact of adopting ASU 2014-09, but the standard is not expected to have a significant effect on its consolidated financial statements.

Standard Product Warranty, Policy [Policy Text Block]

Product Warranties

The Company generally provides a five-year limited warranty covering defective materials and workmanship of its products. Such warranty may require the Company to repair, replace or reimburse the purchaser for the purchase price of the product. The estimated costs related to warranties are accrued at the time products are sold based on various factors, including the Company’s stated warranty policies and practices, the historical frequency of claims and the cost to repair or replace its products under warranty. The warranty provision is included in accrued expenses on the condensed consolidated balance sheet. Changes in the warranty provision for the nine months ended September 30, 2015 were as follows:

Warranty provision as of December 31, 2014	$	4,789,470
Additions to provision		1,422,333
Less warranty costs		(2,518,190	)
Warranty provision as of September 30, 2015	$	3,693,613

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

• Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

• Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, accounts payable, amounts due under lines of credit and other short term borrowings, accrued expenses and the note payable are carried at amounts that approximate their fair value due to the short-term maturity of these instruments and/or variable, market driven interest rates.

The liabilities under derivative contracts, which represent warrants to purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), were initially recorded at fair value and subsequently reflected at their fair value at the end of each reporting period. The fair value of the warrant issued to The Home Depot, Inc. (the “THD Warrant”) in January 2011 is determined using the Monte Carlo valuation method and will be adjusted at each reporting date until the underlying shares have been earned for each year. Such adjustments will be recorded as a reduction in the related revenue (sales incentive) from The Home Depot, Inc. (“The Home Depot”). Once a portion of the THD Warrant vests it is recorded at its fair value at the end of each subsequent reporting period.

Reclassification, Policy [Policy Text Block]

Reclassification

Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net loss or stockholders’ deficit.

XML

Note 8 - Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2015

Notes Tables

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

Warrant Holder	Reason for Issuance	Number of Common Shares		Exercise Price		Expiration Date
Investors in rights offering	Series D Warrants		1,192,048	$	2.65 to $2.66	March 3, 2022 through April 19, 2022
The Home Depot	Purchasing agreement		8,456,432	$	0.95	December 31, 2015 through 2018
RW  LSG Management Holdings LLC	Riverwood Warrants		12,664,760		Variable	May 25, 2022
Certain other investors	Riverwood Warrants		5,427,751		Variable	May 25, 2022
Cleantech Europe II (A) LP	September 2012 Warrants		3,406,041	$	0.72	September 25, 2022
Cleantech Europe II (B) LP	September 2012 Warrants		593,959	$	0.72	September 25, 2022
Portman Limited	September 2012 Warrants		4,000,000	$	0.72	September 25, 2022
Aquillian Investments LLC	Private Placement Series H		830,508	$	1.18	September 25, 2017
Pegasus	Pegasus Warrant		10,000,000		Variable	May 25, 2022
Investors in Series J Follow-On Offering	Series J Warrants		212,164,300	$	0.001	January 3, 2019 through January 30, 2020
Medley	Medley Warrants		10,000,000	$	0.95	February 19, 2024
Pegasus	Pegasus Guaranty Warrants		10,000,000	$	0.50	February 19, 2024
			278,735,799

XML

Note 13 - Commitments and Contingencies (Details Textual)	9 Months Ended
	Sep. 30, 2015 USD ($)
Geveran Case [Member]
Loss Contingency, Damages Sought, Value	$ 25,000,000
Loss Contingency, Damages Sought, Value	$ 25,000,000

XML

Note 9 - Earnings (Loss) Per Share (Details Textual) - $ / shares shares in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Sep. 11, 2015	Jan. 30, 2015
Series J Warrants [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.001		$ 0.001		$ 0.001	$ 0.001
Class of Warrant or Right, Exercise Price of Warrants or Rights
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	213.3	177.1	209.8	190.4

XML

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (Parentheticals) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Related party expenses	$ 0	$ 11,000	$ 0	$ 880,000

XML

Note 3 - Liquidity and Capital Resources

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Liquidity and Capital Resources [Text Block]

Note 3. Liquidity and Capital Resources 

As shown in the condensed consolidated financial statements, the Company has experienced significant historical net losses as well as negative cash flows from operations since its inception, resulting in an accumulated deficit of $816.1 million and stockholders’ deficit of $524.0 million as of September 30, 2015. As of September 30, 2015, the Company had cash and cash equivalents of $574

,000 and an additional $3.0 million in restricted cash subject to a cash collateral dominion agreement pursuant to the Medley Term Loan. The Company’s cash expenditures primarily relate to procurement of inventory, payment of salaries, employee benefits and other operating costs.

The Company’s primary sources of liquidity have historically been borrowings from Ares under the Ares ABL, from Medley under the Medley Term Loan and from other previous lenders, as well as sales of Common Stock and Preferred Stock (as defined below) to, and short-term loans from, affiliates of Pegasus Capital Advisors, L.P. (“Pegasus Capital”), including Pegasus Partners IV, L.P. (“Pegasus IV”), LSGC Holdings LLC (“LSGC Holdings”), LSGC Holdings II LLC (“Holdings II”), LSGC Holdings III LLC (“Holdings III”) and PCA LSG Holdings, LLC (“PCA Holdings” and collectively with Pegasus Capital, Pegasus IV, LSGC Holdings, Holdings II, Holdings III and their affiliates, “Pegasus”). Pegasus is the Company’s controlling stockholder.

The Company obtained the five-year

, $30.5 million Medley Term Loan from Medley on February 19, 2014, pursuant to a Term Loan Agreement (as amended from time to time the “Medley Loan Agreement”). Pursuant to the Medley Loan Agreement, the Company is required to achieve a minimum quarterly fixed charge coverage ratio for the preceding 12-month period and to maintain certain minimum EBITDA levels. In connection with the Medley Term Loan, the Company issued a warrant to purchase 5,000,000 shares of Common Stock to each of Medley and Medley Opportunity Fund II LP (the “Medley Warrants”).

The Company also obtained a three-year revolving credit facility with a maximum line amount of $22.5 million from Ares on April 25, 2014, pursuant to the terms of a Loan and Security Agreement (as amended from time to time, the “Ares ABL Agreement”). As of September 30, 2015, the Company had $7.0 million in borrowings outstanding under the Ares ABL Agreement and additional borrowing capacity of $9.1 million

. The maximum borrowing capacity under the Ares ABL Agreement is based on a formula of eligible accounts receivable and inventory. The Ares

ABL Agreement also requires the Company to achieve a minimum quarterly fixed charge coverage ratio for the preceding 12-month period

.

On September 30, 2015, September 11, 2015 and January 30, 2015, the Company issued 62, 10,000 and 11,525 units of its Series J securities (“Series J Securities”), respectively, to Holdings III and certain other purchasers, at a purchase price of $1,000 per Series J Security for aggregate gross proceeds of $21.6 million. Each Series J Security consists of (i) one share of Series J Convertible Preferred Stock (“Series J Preferred Stock”) and (ii) a warrant to purchase 2,650 shares of Common Stock, at an exercise price of $0.001 per share (the “Series J Warrants”).

The Company continues to face challenges in its efforts to achieve positive cash flows from operations and profitability. The Company’s ability to continue to meet its obligations in the ordinary course of business is dependent upon establishing profitable operations, which may be supplemented by any additional funds raised through public or private financing or increased borrowing capacity.

The Company’s largest customer, The Home Depot, performed a periodic product line review in June 2015 relating to its entire private label LED lighting product offering. As a result of this line review, the Company entered into a new supplier buying agreement with The Home Depot that is expected to go into full effect in April or May 2016. In connection with the new supplier buying agreement, The Home Depot has elected to purchase certain products previously supplied by the Company directly from overseas suppliers. Such products represented a significant percentage of the Company’s sales to The Home Depot in 2015 and 2014. The Company was, however, selected to supply certain new products to The Home Depot and will continue to supply certain other products that the Company sold to The Home Depot under its prior agreement. In addition, the terms of the new supplier buying agreement with The Home Depot permit the Company to pursue opportunities to sell products to specified big box and other retailers, which was prohibited under its prior agreement. Notwithstanding the new agreement, as was the case under the Company’s prior agreement with The Home Depot, The Home Depot is not required to purchase any minimum amount of products from the Company. As a result of the line review, the Company expects 2016 sales to The Home Depot and, as a result, total revenue, to be significantly reduced. However, because the Company cannot reasonably estimate at this time the extent to which such reduced revenue may be offset by sales of the new products to The Home Depot, as well as by any potential new sales to other retailers, the Company cannot determine at this time the overall impact that the results of The Home Depot line review will have on the Company’s financial condition and operations in the future.

As a result of the Company’s historical losses, the Company believes it will likely need to raise additional capital to fund its operations. Sources of additional capital may not be available in an amount or on terms that are acceptable to the Company, if at all. The Company’s complex capital structure, including its obligations to the holders of the outstanding shares of its Preferred Stock (as well as the shares of Series K Preferred Stock that it will be required to issue upon posting the Appeal Bond (as defined below)), may make it more difficult to raise additional capital from new or existing investors or lenders. If the Company is not able to raise such additional capital, the Company may need to restructure or refinance its existing obligations, which restructuring or refinancing would require the consent and cooperation of the Company’s creditors and certain stockholders. In such event, such restructuring or refinancing may not be accomplished on terms that are acceptable to the Company, if at all. If the Company is unable to obtain sufficient capital when needed, the Company’s business, compliance with its credit facilities and future prospects may be adversely affected.

RW LSG Holdings LLC (“Riverwood”) and Pegasus each have the right to cause the Company to redeem their shares of Series H Convertible Preferred Stock (“Series H Preferred Stock”) and Series I Convertible Preferred Stock (“Series I Preferred Stock”) and collectively with the Series H Preferred Stock and the Series J Preferred Stock, the “Preferred Stock”), respectively, at any time on or after March 27, 2017. If either Riverwood or Pegasus elects to cause the Company to redeem its shares of Series H Preferred Stock or Series I Preferred Stock, all other holders of the applicable series will similarly have the right to request the redemption of their shares of Preferred Stock. In addition, Portman Limited (“Portman”) and affiliates of Zouk Holdings Limited acting together, have a contractual right to require the Company to redeem their respective shares of Series H Preferred Stock on or after March 27, 2017, subject to certain conditions and limitations. The Company is also required to redeem the outstanding shares of its Series J Preferred Stock (a) subject to certain limited exceptions, immediately prior to the redemption of the Series H Preferred Stock, Series I Preferred Stock or any other security that ranks junior to the Series J Preferred Stock and (b) on November 14, 2019, at the election of the holders of Series J Preferred Stock (a “Special Redemption”). Holders of Preferred Stock would also have the right to require the Company to redeem such shares upon the uncured material breach of the Company’s obligations under its outstanding indebtedness or the uncured material breach of the terms of the certificates of designation governing the Preferred Stock. As of September 30, 2015, in the event the Company was required to redeem all of its outstanding shares of Preferred Stock, the Company’s maximum payment obligation would have been $512.1 million. The Company would be required to repay its outstanding obligations under the Medley Term Loan and the Ares ABL prior to the redemption of any shares of Preferred Stock. As of September 30, 2015, the Company had $35.8 million of aggregate borrowings outstanding under these credit facilities.

Any redemption of the Preferred Stock would be limited to funds legally available therefor under Delaware law. The certificates of designation governing the Preferred Stock provide that if there is not a sufficient amount of cash or surplus available to pay for a redemption of Preferred Stock, then the redemption must be paid out of the remaining assets of the Company. In addition, the certificates of designation governing the Preferred Stock provide that the Company is not permitted or required to redeem any shares of Preferred Stock for so long as such redemption would result in an event of default under the Company’s credit facilities.

As of September 30, 2015, based solely on a review of the Company’s balance sheet, the Company did not have legally available funds under Delaware law to satisfy a redemption of its Preferred Stock. In addition, based solely on the Company’s projected balance sheet as of March 27, 2017, the Company does not believe that it will have legally available funds on or before March 27, 2017 to satisfy any such redemption.

The certificate of designation governing the Series H Preferred Stock also provides that upon the occurrence of a “control event,” the Company must take any and all actions required and permitted to fix the size of its board of directors to a size that would permit Riverwood (as the primary investor of the Series H Preferred Stock) to appoint a majority of the directors to the board until the Company satisfies or otherwise cures the obligations giving rise to the control event. A control event occurs if, among other things, Riverwood exercises its optional redemption right under the certificate of designation governing the Series H Preferred Stock and the Company is unable to redeem Riverwood’s Preferred Stock. If Riverwood were to exercise its optional redemption right and a control event were to occur, Riverwood could take control of the board of directors.

The certificate of designation governing the Series J Preferred Stock provides that if the Company does not have sufficient capital available to redeem the Series J Preferred Stock in connection with a Special Redemption of the Series J Preferred Stock, the Company will be required to issue a non-interest bearing note or notes (payable 180 days after issuance) in the principal amount of the liquidation amount of any shares of Series J Preferred Stock not redeemed by the Company in connection with such Special Redemption, subject to certain limitations imposed by Delaware law governing distributions to stockholders.

As discussed further in Note 13, one of the Company’s stockholders, Geveran Investments Limited (“Geveran”), filed a lawsuit against the Company and certain other defendants seeking, among other things, rescissionary damages in connection with its $25.0 million investment in the Company. On August 28, 2014, the court presiding over the lawsuit granted Geveran’s motion for partial summary judgment with respect to its cause of action for violation of the Florida securities laws

(the “August 28

th

Order”). It is anticipated that the August 28th Order will be entered by the court as a final judgment sometime in November 2015. Once the final judgment has been entered, the Company plans, within the 30-day period proscribed by Florida law, to file an appeal and, together with the other defendants, post a bond (the “Appeal Bond”), which will allow the Company to obtain an automatic stay of enforcement throughout the appeal process. Pegasus IV has agreed to assist the Company in securing the Appeal Bond on specified terms. Upon posting the Appeal Bond and as security for the potential payments to be made to the issuer of the Appeal Bond for draws upon it, the Company has agreed to issue to Pegasus IV units of the Company’s securities (the “Series K Securities”), with each Series K Security consisting of (a) one share of a newly designated series of preferred stock designated as Series K Preferred Stock and (b) a warrant to purchase 735 shares of Common Stock

at an exercise price that will equal the prevailing market price of our Common Stock immediately prior to the issuance of such warrant. The shares of Series K Preferred Stock will be senior to the Company’s Common Stock and all other series of Preferred Stock. The number of Series K Securities to be issued to Pegasus IV will be determined upon posting the Appeal Bond and will be equal to the quotient obtained by dividing (x) the aggregate amount of the bonds, undertakings, guarantees and/or contractual obligations underlying Pegasus IV’s initial commitment with respect to the Appeal Bond by (y) $1,000. Although the Company cannot predict the ultimate outcome of this lawsuit, it believes the court’s summary judgment award in favor of Geveran is in error and that it has strong defenses against Geveran’s claims. However, in In the event that the Company is not successful on appeal, it could be liable for the full amount of Geveran’s $25.0 million investment, as well as interest, attorneys’ fees and court costs. Accordingly, the summary judgment and the Appeal Bond could have a material adverse effect on the Company’s liquidity and its ability to raise capital in the future. 

 

XML

Note 9 - Earnings (Loss) Per Share (Tables)

9 Months Ended

Sep. 30, 2015

Third Quarter [Member]

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	For the Three Months Ended September 30,
	2015						2014
	Controlling Stockholders			Noncontrolling Stockholders			Controlling Stockholders			Noncontrolling Stockholders
Basic and diluted net income (loss) per share:
Net loss attributable to common stock	$	203,149		$	66,195		$	(1,686,077	)	$	(416,499	)
Deemed dividends related to the Series J Preferred Stock attributable to all shareholders		(11,742,251	)		(3,826,160	)		(9,571,504	)		(2,364,374	)
Undistributed net loss	$	(11,539,102	)	$	(3,759,965	)	$	(11,257,581	)	$	(2,780,873	)
Basic and diluted weighted average number of common shares outstanding		303,817,578			98,997,606			255,194,735			63,038,781
Basic and diluted net loss per common share	$	(0.04	)	$	(0.04	)	$	(0.04	)	$	(0.04	)

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	For the Nine Months Ended September 30,
	2015						2014
	Controlling Stockholders			Noncontrolling Stockholders			Controlling Stockholders			Noncontrolling Stockholders
Basic and diluted net income per share:
Net loss attributable to common stock	$	(11,841,266	)	$	(3,934,793	)	$	(43,394,934	)	$	(10,430,121	)
Deemed dividends due to the issuance of Pegasus Guaranty Warrants as compensation for guaranty provided by controlling shareholders		-			-			570,574			(570,574	)
Deemed dividends related to the Series J Preferred Stock attributable to all shareholders		(23,178,283	)		(7,702,028	)		(34,077,591	)		(8,190,666	)
Undistributed net loss	$	(35,019,549	)	$	(11,636,821	)	$	(76,901,951	)	$	(19,191,361	)
Basic and diluted weighted average number of common shares outstanding		296,699,120			98,591,636			220,629,709			53,029,108
Basic and diluted net loss per common share	$	(0.12	)	$	(0.12	)	$	(0.35	)	$	(0.36	)

XML

Note 7 - Fair Value Measurements - Reconciliation of Beginning and Ending Balances for Assets and Liabilities Accounted For at Fair Value on a Recurring Basis (Details) - Fair Value, Inputs, Level 3 [Member] - USD ($)	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Pegasus Commitment [Member]
Beginning balance	$ 720,000	$ 1,407,335
Realized and unrealized gains included in net loss	$ (433,600)	$ (367,335)
Purchases, sales, issuances and settlements
Transfers in or out of Level 3
Ending balance	$ 286,400	$ 1,040,000
Riverwood Warrants [Member]
Beginning balance	(2,352,027)	(5,002,664)
Realized and unrealized gains included in net loss	$ (464,977)	$ 1,746,011
Purchases, sales, issuances and settlements
Transfers in or out of Level 3
Ending balance	$ (2,817,004)	$ (3,256,653)
September Two Thousand Twelve Warrants [Member]
Beginning balance	(720,000)	(1,407,335)
Realized and unrealized gains included in net loss	$ 433,600	$ 367,335
Purchases, sales, issuances and settlements
Transfers in or out of Level 3
Ending balance	$ (286,400)	$ (1,040,000)
Pegasus Warrant [Member]
Beginning balance	(1,300,000)	(2,765,047)
Realized and unrealized gains included in net loss	$ (257,000)	$ 965,047
Purchases, sales, issuances and settlements
Transfers in or out of Level 3
Ending balance	$ (1,557,000)	$ (1,800,000)
THD Warrant [Member]
Beginning balance	(43,928)
Realized and unrealized gains included in net loss	$ (76,154)	$ (39,867)
Purchases, sales, issuances and settlements
Transfers in or out of Level 3		$ (74,576)
Ending balance	$ (120,082)	$ (114,443)
Medley Warrant [Member]
Beginning balance	(577,065)
Realized and unrealized gains included in net loss	$ (319,289)	$ 1,847,049
Purchases, sales, issuances and settlements		$ (3,170,361)
Transfers in or out of Level 3
Ending balance	$ (896,354)	$ (1,323,312)
Series J Warrants [Member]
Beginning balance
Realized and unrealized gains included in net loss		$ (25,140,561)
Purchases, sales, issuances and settlements		(12,505,739)
Transfers in or out of Level 3		$ 37,646,300
Ending balance
Pegasus Guaranty Warrants [Member]
Beginning balance	(643,924)
Realized and unrealized gains included in net loss	$ (382,290)	$ 1,901,193
Purchases, sales, issuances and settlements		$ (3,336,574)
Transfers in or out of Level 3
Ending balance	$ (1,026,214)	$ (1,435,381)
Beginning balance	(4,916,944)	(7,767,711)
Realized and unrealized gains included in net loss	$ (1,499,710)	(18,721,128)
Purchases, sales, issuances and settlements		(19,012,674)
Transfers in or out of Level 3		37,571,724
Ending balance	$ (6,416,654)	$ (7,929,789)

XML

Note 13 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note 13. Commitments and Contingencies

The Company is subject to the possibility of loss contingencies arising in its business. Such contingencies are accounted for in accordance with ASC Topic 450, “Contingencies.” In determining loss contingencies, the Company considers the possibility of a loss and the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is considered probable that a liability has been incurred and when the amount of loss can be reasonably estimated.

16

Legal Proceedings

In the ordinary course of business, the Company is routinely a party to various pending and threatened legal claims and proceedings. While the ultimate outcome of these matters cannot be predicted with certainty, based on information currently available and advice of counsel, and taking into account available insurance coverage, except as noted below, the Company does not believe that the outcome of any of these claims will have a material adverse effect on its business, financial condition or results of operations. However, the results of legal proceedings cannot be predicted with certainty, and in the event of unexpected future developments the ultimate resolution of one or more of these matters could be unfavorable. Should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the consolidated financial position or operating results could be materially adversely affected. Regardless of the outcome, any litigation may require the Company to incur significant expenses and may result in significant diversion of management’s attention. Further, during its ordinary course of business, the Company enters into obligations to defend, indemnify and/or hold harmless various customers, officers, directors, employees, and other third parties. These contractual obligations could give rise to additional litigation costs and involvement in court proceedings.

Geveran Investments Limited v. Lighting Science Group Corporation, et al

. (the “Geveran Case”)

On June 22, 2012, Geveran Investments Limited (“Geveran”), one of the Company’s stockholders, filed a lawsuit against the Company and several other defendants in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida. On October 30, 2012, the court entered an order transferring the lawsuit to the Ninth Judicial Circuit in and for Orange County, Florida. The Geveran Case names the Company as a defendant, as well as Pegasus Capital and nine other entities affiliated with Pegasus Capital; Richard Weinberg, our former Director and former interim Chief Executive Officer and a former partner of Pegasus Capital; Gregory Kaiser, a former Chief Financial Officer; J.P. Morgan Securities, LLC (“J.P. Morgan”); and two employees of J.P. Morgan. Geveran seeks rescissionary damages in connection with its $25.0 million investment in the Company, as well as recovery of interest, attorneys’ fees and court costs, jointly and severally against the Company, Pegasus Capital, Mr. Weinberg, Mr. Kaiser, J.P. Morgan and the two J.P. Morgan employees, for alleged violations of Florida securities laws. Geveran alternatively seeks unspecified money damages, as well as recovery of court costs, for alleged common law negligent misrepresentation against these same defendants. In August 2014, the court granted Geveran’s motion to amend their first amended complaint to assert a claim for punitive damages against the defendants.

On August 28, 2014, the court issued the August 28

th

Order. It is anticipated that the August 28th Order will be entered by the court as a final judgment sometime in November 2015. Once the final judgment has been entered, the Company plans, within the 30-day period proscribed by Florida law, to file an appeal and, together with the other defendants, post the Appeal Bond, which will result in the automatic stay of enforcement throughout the appeal process.

While the outcome of any appeal is inherently difficult to predict, the Company believes that the trial court’s grant of summary judgment to plaintiff was in error. In the event that the summary judgment is overturned on appeal, and the case were to be remanded back to the trial court for further proceedings

, the Company believes it has strong defenses against Geveran’s claims. The Company denies liability in connection with this matter and intends to continue to vigorously defend itself against the claims asserted by Geveran. However, in the event that the Company is not successful on appeal, it could be liable for the full amount of Geveran’s $25.0 million investment, as well as interest, attorneys’ fees and court costs. Even if the Company is successful on appeal and the case were to be remanded back to the trial court for further proceedings, the amount of possible loss, if any, cannot be reasonably estimated at this time. The Company believes that, subject to the terms and conditions of the relevant policies (including retention and policy limits), directors’ and officers’ insurance coverage will be available to cover the substantial majority of its legal fees and costs in this matter. However, given the unspecified nature of Geveran’s maximum damage claims, insurance coverage may not be available for, or such coverage may not be sufficient to fully pay, a judgment or settlement in favor of Geveran.

Based upon the terms of an indemnification agreement described below, the Company has also paid, and is likely to pay in the in the future, reasonable legal expenses incurred by J.P. Morgan and its affiliates in this lawsuit in connection with the engagement of J.P. Morgan as placement agent for the private placement with Geveran. Such payments are not covered by the Company’s insurance policies. The engagement letter executed with J.P. Morgan provides that the Company will indemnify J.P. Morgan and its affiliates from liabilities relating to J.P. Morgan’s activities as placement agent, unless such activities are finally judicially determined to have resulted from J.P. Morgan’s bad faith, gross negligence or willful misconduct. Accordingly, the outcome of the Geveran Case, if unfavorable, would likely have a material adverse effect on the Company’s financial position.

17

GE Lighting Solutions v. Lighting Science Group Corporation

, et al.

The Company is also a defendant in an action brought by GE Lighting Solutions LLC (“GE Lighting”) in Federal District Court for the Northern District of Ohio in or about January 2013. GE Lighting asserts a claim of infringement by the Company, as well as five other LED manufacturers, of U.S

. Patent No. 6,787,999, entitled

LED-Based Modular

Lamp, and U.S. Patent No. 6,799,864, entitled

High Power LED Power Pack for Spot Module Illumination

, and seeks monetary damages and an injunction. The Company denies liability in connection with this matter, asserts non-infringement defenses, and also asserts that the patents include terms that are indefinite and thus are invalid. On August 5, 2015, the Federal District Court granted the Company’s summary judgment motion invalidating the two GE patents at issue for indefiniteness, and dismissing GE’s patent infringement claims against the Company and the other defendants.  On September 2, 2015, GE filed an appeal with the U.S. Court of Appeal for the Federal Circuit. The appellate court could reverse the judgment and remand the case back to the Federal District Court for further proceedings. A ruling is not expected on GE’s appeal for nine to twelve months

.

Other

In addition, the Company may be a party to a variety of legal actions, such as employment and employment discrimination-related suits, employee benefit claims, breach of contract actions, tort claims, shareholder suits, including securities fraud, intellectual property related litigation, and a variety of legal actions relating to its business operations. In some cases, substantial punitive damages may be sought. The Company currently has insurance coverage for certain of these potential liabilities. Other potential liabilities may not be covered by insurance, insurers may dispute coverage or the amount of insurance may not be sufficient to cover the damages awarded. In addition, certain types of damages, such as punitive damages, may not be covered by insurance and insurance coverage for all or certain forms of liability may become unavailable or prohibitively expensive in the future.